Professional Documents
Culture Documents
Passive Investors
Active Investors
Confident axis
Careful-impetuous axis
The Adventurer
The Celebrity
The Individualist
The Guardian
Two Methods
Bottom-Up Approach
Top-Down Approach
BB = Behavioral Biases
Step 1 interview the client & identify active or passive traits & risk tolerance.
Step 2 the investor on the active/passive & risk tolerance scale.
Step 3 tests for behavioral biases.
Step 4 Classify investor into a behavioral investor type.
Independent Individualist
Active Accumulator
Active investor with high risk tolerance.
Most aggressive investors & primarily subject to emotional
biases.
Quick decision makers with risky investments.
BF helps the adviser understand the reasons for the clients goals.
7.2 Momentum
Studies have identified that the value stocks have outperformed relative
to growth stocks.
Halo affect investor transfers favorable company attribute into thinking
that the stock is a good buy.
Behavioral explanations present the anomalies as mispricing rather than
risk.
Overconfidence in predicting growth rates (growth stocks over valuation).
Home bias anomaly investors favor investing in domestic country as
compared to foreign countries.