New research uncovers the groups who are most likely to buy stocks based on headlines and hype
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Do you ever wonder why certain types of clients seem more prone to making rash or emotional investment decisions? Well, a new survey reveals which groups are most likely to buy stocks based on headlines and hype and sheds some light on how advisors can help clients control this potentially harmful behaviour.
Conducted by Hennick Wealth Management, the survey of Canadian investors found that higher income earners ($75K - $150K+) were more likely to make an investment decision based on a ‘hunch’ or a tip from a friend. 11.8% of high income earners said they would buy a stock solely on a friend’s recommendation compared with just 5.3% of low-to-mid income earners ($0K-74K.)
Interestingly, men (13.7%) were twice as likely to make emotional investments and buy stocks based on a hunch than women (7.5%). Men (34.2%) were also much more like to buy a stock based on the recommendation of a friend compared with women (27.8%). “Men seem particularly influenced by ‘insider advice’ from other males when investing,” said Adam Hennick of Hennick Wealth Management. “I hear a lot of ‘Warren from the baseball team says it's a sure thing because he knows a guy’ sort of reasoning, but it never seems to be based on fact or research. Women just don’t think that way about investments – which is wise.”
“If you do take investment advice for a friend, try to do it from your friends that have been successful in investing. This seems obvious, but sometimes our desire to act on a hot tip can overwhelm our logic. Ask yourself, is this a person who’s actually done financially well in investing, or someone who just talks a good game.”
All savvy investors know that making decisions based on emotions is a recipe for disaster, so it should come as no surprise that 22.7% of Canadians said they have regretted an investment decision they made that was based on emotion. A staggering 69.2% of men with a high income regretted making an investment decision based on a hunch or gut instinct.
But how can investors avoid making those wrong decisions? Dr. Yashar Khosroshahi, an executive coach in developing strategies to avoid emotional investing, believes it comes down to listening to your body and being aware of how a potential investment makes you feel. The initial rush of adrenaline and excitement may be your body’s way of warning you off from investing in the stock. “When you really break it down, sweaty palms, hair standing up on the back of your neck and a tingling in your belly might be the same reaction that you have to an unexpected letter from the taxman,” says Dr. Khosroshahi.
Dr. Khosroshahi advises emotional investors to develop strategies that will help them avoid making decisions they later come to regret. He suggests investors give themselves an hour or two to cool off before committing to a hunch or a tip. “You likely already know if you are an emotional investor based on how you handle other key stress points in your life,” adds Dr. Khosroshahi. “The good news is that you can learn to be mindful of when you might make an emotional investment decision and mitigate bad decisions by building your own road blocks.”
Hennick encourages investors to make a checklist of questions to consider before making any investment. “Maybe stock x is cool and they make something that you really like, but how has the stock performed? How has it performed over the past 5 years? Is it really worth buying into at the current price? What are the risks?”
Related stories:
Why it’s important to remove emotion from your clients’ decisions
How to increase client satisfaction in times of uncertainty
Conducted by Hennick Wealth Management, the survey of Canadian investors found that higher income earners ($75K - $150K+) were more likely to make an investment decision based on a ‘hunch’ or a tip from a friend. 11.8% of high income earners said they would buy a stock solely on a friend’s recommendation compared with just 5.3% of low-to-mid income earners ($0K-74K.)
Interestingly, men (13.7%) were twice as likely to make emotional investments and buy stocks based on a hunch than women (7.5%). Men (34.2%) were also much more like to buy a stock based on the recommendation of a friend compared with women (27.8%). “Men seem particularly influenced by ‘insider advice’ from other males when investing,” said Adam Hennick of Hennick Wealth Management. “I hear a lot of ‘Warren from the baseball team says it's a sure thing because he knows a guy’ sort of reasoning, but it never seems to be based on fact or research. Women just don’t think that way about investments – which is wise.”
“If you do take investment advice for a friend, try to do it from your friends that have been successful in investing. This seems obvious, but sometimes our desire to act on a hot tip can overwhelm our logic. Ask yourself, is this a person who’s actually done financially well in investing, or someone who just talks a good game.”
All savvy investors know that making decisions based on emotions is a recipe for disaster, so it should come as no surprise that 22.7% of Canadians said they have regretted an investment decision they made that was based on emotion. A staggering 69.2% of men with a high income regretted making an investment decision based on a hunch or gut instinct.
But how can investors avoid making those wrong decisions? Dr. Yashar Khosroshahi, an executive coach in developing strategies to avoid emotional investing, believes it comes down to listening to your body and being aware of how a potential investment makes you feel. The initial rush of adrenaline and excitement may be your body’s way of warning you off from investing in the stock. “When you really break it down, sweaty palms, hair standing up on the back of your neck and a tingling in your belly might be the same reaction that you have to an unexpected letter from the taxman,” says Dr. Khosroshahi.
Dr. Khosroshahi advises emotional investors to develop strategies that will help them avoid making decisions they later come to regret. He suggests investors give themselves an hour or two to cool off before committing to a hunch or a tip. “You likely already know if you are an emotional investor based on how you handle other key stress points in your life,” adds Dr. Khosroshahi. “The good news is that you can learn to be mindful of when you might make an emotional investment decision and mitigate bad decisions by building your own road blocks.”
Hennick encourages investors to make a checklist of questions to consider before making any investment. “Maybe stock x is cool and they make something that you really like, but how has the stock performed? How has it performed over the past 5 years? Is it really worth buying into at the current price? What are the risks?”
Related stories:
Why it’s important to remove emotion from your clients’ decisions
How to increase client satisfaction in times of uncertainty
