Background information on Behavioural Finance
In the first analysis, money and feelings have nothing to do with each other. However, if one looks at money and human investment behaviour from a psychological point of view, emotions do direct the mind and prompt action. Strategic investment planning is only possible if the psychological background in dealing with monetary and value investments is taken into account and can be controlled. It is not for nothing that we tend to believe in and respond to statements such as: “Success knows no limits”.
However, no success is permanent or unlimited. Every industry has its ups and downs - there is no such thing as a balanced equilibrium in value trading and financial investments. The reactions of the market and the behaviour of investors are responsible for this. The crucial drivers for investors are profit and success. What was experienced as success burns itself into our memories and increases our appetite for risk. The knowledge of possible dangers does not slow down the eager anticipation of profit in any way. The positive experience stored in our emotional memories operates much faster in the processing of brain stimuli than any rational, learned aspect of optimal investment behaviour. If there is no conscious and targeted control of emotional impulses, investors follow the irrational prompts hardwired into their brains and carry out actions that may result in losses. Even the experience of loss can lead to further risky actions.
Knowledge of psychological control mechanisms is an aspect contributing to measured and in the long-term successful money management. Knowledge of economic theories, chart analysis and psychological effects on stock market behaviour are also essential prerequisites. The mass reacts to the new trigger which causes the investor market to shift again.
Trainings, workshops and lectures on the topic of “Behavioral Finance” are available on request from the Management Institute Dr. A. Kitzmann.
Author: Management Institute Dr. A. Kitzmann