RSM330-Investment-Report (1).docx

However given that we were loss averse and uncertain

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additional stocks on that day (buy low, sell high). However, given that we were loss-averse and uncertain when the absolute minimum price would occur, we gave up opportunities to make that profit. A shortfall of being loss-averse was our unwillingness to invest a large amount of money in our stocks. As a result, we did not invested the full $500,000 in our active portfolio. Consequently, when stocks performed well, we wanted to purchase more shares of them. However, we kept on running into the challenge of high commission fees which turned us away from buying the additional shares. A lesson learned is to be more confident in our decisions and invest in a larger amount of stocks initially to limit the number of transactions, and thus the number of fees. Another bias we suffered from was self-attribution bias, meaning that we attributed successes (profits) to our own skill, but unsuccessful outcomes (losses) to bad luck. This bias was very evident in this investment project as we were inclined to blame losses on bad luck, the market’s performance or other external factors rather than reconsidering our investment strategy and proceeding with the optimal solution. An example of this occurring was short- selling Canopy Growth; we waited too long and ended up no maximizing our profits. Finally, we would like to believe that our successes were based off of skill, and our losses were attributed to bad luck. However, in reality, it was likely a combination of our research and the market forces acting on our investments. 8
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Conclusion All in all, this investment project allowed us to experiment with a variety of trading strategies and invest in stocks that we may not be willing to in real life. Through the project, there was a lot of learning and realization on how much consistent effort it takes to maintain a portfolio; especially with all the constant information we are exposed to in the current day. Finally, recognizing that behavioural biases exist and managing them is a great way to prevent them from influencing investment decisions. In particular, it has been rewarding to see the positive returns we have generated and the ranking (14) we have been able to achieve. 9
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  • Winter '08
  • Becks

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