xperts and financial advisers say that investing is 99% investor behaviour management and 1% money management. The good news is that Indian advisers are not alone in this dilemma. Sarah Newcomb, behaviour economist, Morningstar Inc., an investment research and investment management firm, spoke to Mint about how it is a universal problem and investors in even developed countries tend to think short-term. The not-so-good news is that there is no clear answer yet, on how to influence investor behaviour to instill good habits. Newcomb’s research at Morningstar includes incorporating human behaviour traits into tools meant for financial advisers to better analyse the client’s risk profiles. Edited excerpts:
Indian investors don’t quite follow their risk profile. They take a risk profile test but whatever the results evaluate them to be, they react very differently in crunch market situation. Is it the same with US investors or are they more in sync with their risk profiles?
Oh yes. That is not a cultural problem. That is a human problem. We are pretty bad at predicting as to how we are going to behave when we are stressed about money. You can ask people what their thoughts are or how they are going to behave or feel, but it’s very different when you are actually watching your portfolio shrink.
