Long-term investing can help counter investors’ behavioural biases

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Long-term investing

What is the main problem facing the investor today? Some might say less accommodating central bank policies. Others could point to where we are in the economic cycle. While those are very valid issues, all too often, as the founder of modern security analysis Benjamin Graham once said, “The investor’s chief problem – and even his worst enemy – is likely to be himself.” Investor behaviour can appear to defy all logic and reason. Why? According to research in behavioural finance, most investors are not strictly rational. Rather, they are subject to behavioural biases; past experiences, personal beliefs and preferences can influence judgment and skew decisions. These biases can steer them away from logical, long-term thinking, and deter them from reaching their long-term investment goals. In this report, we study two common behavioural biases: loss aversion and herd mentality. We examine their impact on investment returns and consider how long-term investing can help mitigate these biases and produce positive investment outcomes.