When I was in College I was a little upset and skeptical about having to spend my hard earned money working as a Tire Buster, on tuition/books for the required Psychology and Sociology classes. What did these classes have to do with my ambition of being a Stock Broker or running an outdoor equipment company? Well, I soon realized the wisdom of the Liberal Education curriculums. The Behavioral Sciences of Psychology and Sociology are probably the biggest factors of how the investment markets move. Frankly, they are the reason we even have an investment market. That desire to make money is bred out of the human insecurity of "not having enough", we all possess.
Do you want proof of Behavioral Science’s impact on financial markets? “Consumer Confidence” is a key variable in forecasting market trends. “Confidence” is an emotion, a state of mind. On 9/11/2001 slightly over 3,000 people were killed in a dramatic terrorist attack. More people die from bee stings, and yet our stock market fell 40%. That’s the impact of behavioral science on our economy. My point? Just because your neighbor's mutual fund had a high return last year, doesn't mean that fund will have the same performance this year. Don’t let your emotions get the best of you. AND don’t let that innate tendency of wanting the returns that others had cause you to act without wisdom. Like the ‘small print’ of every mutual fund prospectus says, and few people read, “Past performance is no guarantee of future performance”. Don’t ‘covet’ your neighbor’s returns. Frankly, I'm shocked the SEC allows fund companies to market their annual returns. Isn't an "ANNUAL" return the return on the money from January 1st to December 31st of the same year? SO unless you had invested on January 1st, chances are that YOUR returns for that year would be different than their marketed returns. Maybe if your money went in a month later, you missed out on a market surge, or maybe you missed a market downturn in that month. Chasing returns is a fools game that no one can predict. If anyone could, there would be no markets at all.
Steve J. Casull, CEO & Founder