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[ INVESTOR PSYCHOLOGY ]
Hannah Smith delves into human psychology in an attempt to
understand why investors so frequently take the worst course of
action at the worst possible time
Mental wealth
A
s the Covid-19 pandemic
took hold, one of the
earliest knee-jerk
responses seen among the
general public was the panic buying
of essentials. Images of trolleys
overflowing with toilet rolls, pasta
and bread filled the newspapers, as
did round-the-block queues to get
through supermarket doors.
The other side of the panic buying
we have seen in the shops is what
has played out in the stock markets.
Faced with a sea of red numbers
on their screens, many investors
have been panic selling their
investments, leading the FTSE 100
to post its second largest one-day
fall in history on 12 March. While
some of the earliest sellers will have
been hedge funds desperately trying
to reduce their leverage, plenty of
other investors also got caught up in
emotion-driven selling.
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“We can see from the scale of the
moves – 10 per cent daily moves up
and down in stock markets – that
there is definite panic in that,” says Joe
Wiggins, head of portfolio management
for multi-manager strategies at
Aberdeen Standard Investments.
The forces driving people to stockpile
in shops are the same that are driving
them to divest their equity positions
and flee to cash. Even safe-haven
assets such as gold and sovereign
bonds have fallen alongside stocks on
some days in the last few weeks amid
indiscriminate selling.
The forces driving people
to stockpile in shops are
the same that are driving
them to divest their equity
positions and flee to cash
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