Investments versus Investors

Interesting Links from the Web from Jim Parker

You won’t read this in the Australian Financial Review, but the typical investor doesn't do nearly as well as the typical investment. The reason for the gap between advertised returns and what we receive is our own behaviour – the theme of this week’s Coffee Break. We publish these links each week to provide you with client-ready articles that reinforce a patient, disciplined approach to money.

1. How Investors Get it Wrong Why do so many people not get the market rates of return owning to them as investors? The answer is simple, says respected US economist Tim Harford. We trade too much, we try to time the market, we don’t focus on cost and we fail to diversify.

2. The Science of Investor Behaviour Did you know there is an entire branch of psychology devoted to how we fool ourselves as investors? Chasing past returns or mistaking luck for skill or sticking to close to home are all documented “behavioural biases”. This article lists some of the major biases and shows how you can deal with them.

3. Squiggly Lines and the Future Financial journalists appear on the news every night showing you lots of squiggly lines on graphs and making it all sound obvious. But people go wrong in looking at patterns in past data and turning them into forecasts. This article warns against drawing big conclusions from pretty graphics.

Jim Parker, DFA Australia Limited