Investing PI 10

Investing PI 10 - only on the negative side The optimistic...

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Emotion is an integral componet of making resonable decisions. People who are more optemisstic believe events in their lives' will have a more positive outcome, in essence, emotions drive how people think. Emotional investors are bad investors. They leave to many aspects of investing to whim and feelings. The misattribution bias is when peoples' mood affect their financial decision; people who are in bad moods will be less likely to take risky actions. Even people who use fundamental analysis can be affected by their moods in making decisions. When deciding a factor such as a company's growth rate can be altered based on how a person feels. The weather also can affect peoples' decisions. In an experiment, people tipped nearly 50 percent more when it was sunny outside compared to when it rained. In comparison, people will likely buy rather than sell on sunny days and when done on a mass scale, can affect how the market does. Another survey revealed that the lunar cycle and sport games can affect the market but
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Unformatted text preview: only on the negative side. The optimistic however, will overpower the market versus the pessimist because those with negative feelings will stay on the sidelines while those with good outlooks will continue to buy. Companies that are well established have less lee way to be impacted by emotions from investors. This is because they usually have less room for growth and people have a strong understanding of the abilities of the corporation. Arbitrage is the capturing of moody investors actions to make a profit. In a survey, speculative stocks with negative sentiment at the beginning of the year had a higher return than ones with postive sentiment. Price bubbles are not unusual and have happend several times since the 20th century. They soar tremendously but will eventually bust. Investing can also be seen as a means of gambling. People who enjoy gambling will seek stocks that offer the same sort of low cost high return probability and will trade much more often to seek quick riches....
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This note was uploaded on 09/13/2011 for the course FIN 250 taught by Professor Johansen during the Fall '10 term at Boise State.

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