Dan Kemp: Periods of market turbulence can be especially dangerous for investors as they tend to elicit an emotional response and heighten the behavioral biases to which we are all prone. Left uncheck these biases can lead to us making poor decisions which can harm long-term investment returns. We therefore need to find a way to overcome these biases and here are three ways that may help you do this.
First, remember that investment is a long-term pursuit and put all recent price movements in this context. While a 4% fall may feel a lot, it means little in the context of a 10 or even 20-year investment horizon. Second, try to avoid the sensational headlines that can lure you into action. It's normally better to read books than listen to forecasts.
Third, if you are going to look for opportunities, ensure that you have a robust framework for setting the real value of assets. This will provide an anchor for your expectations and help you avoid overreacting to short-term price movements. And finally, remember that investors tend to make too many decisions rather than too few. So, if in doubt, do nothing.
And within the Morningstar Managed Portfolios team we will be spending today as we spend every day, assessing the value of each asset class, digging into the fundamental drivers of returns and challenging each other's views. While this is nowhere near as exciting as making quick-fire trading decisions, it reflects our observation of how the most successful investors operate.
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