The below article was done by Birgit Bruckner, Behavioral Finance Specialist from Mindset-Money. We asked her to give us some special insight into her opinion on how does the COVID19 crisis affects our decisions and how behavioral finance comes into the picture with better decision making.
Mag. Birgit Bruckner, MSc, CIIA is a behavioral finance specialist. She was active as an exchange trader and asset manager. Today she shows companies and private individuals how to improve their money decisions.
COVID-19 with all its consequences disconnects us from our everyday structures and feeling of security. Nothing scares us more than uncertainty. One consequence: emotions determine our decisions. A manageable risk when shopping in a supermarket. A real risk when you are investing.
Here are 3 tips on how you can make better decisions during times of crisis.
Action bias: I can master it.
If we experience something unpredictable, we try to regain control over actions. Blind actions often lead to a dismissal of the previous investment strategy. Research shows that what immediately provides emotional relief costs retrospectively a lot of money.
What to do? Stick to your investment strategy. As a smart investor, you have carefully considered this in the first case. Find a replacement. Tidy out your financial news sources, sort your photos. But stay away from your investment strategy.
FOMO: Sales mood on the investment market.
Those investors who were previously not or not sufficiently invested, now have to worry about missing out on cheap market entry. The future shows whether the current market development is a bull trap or the rebound of the market. What to do? Invest wisely – the future is uncertain. Therefore: Enter the market step by step and in any case spread the risk.
Confirmation Bias: I knew it straight away.
We long for orientation and try to gain clarity by gathering information. We take information that corresponds to our own opinion stronger and remember it better. The result: We aren’t better informed, but have just confirmed our opinion.
What to do? Think about what your current opinion really is. Then consciously look for information that is contradicting your current attitude. This actually will expand your knowledge and improve your decision quality. Decide clearly better & stay healthy!
