• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint

Summary

Your social environment affects your conclusions about the value of investing. The ideas of those you work with and socialize with are a big factor in your investment decisions. If you are in a group of peers whose social norms value investing, you probably talk about investing. You are also more likely to invest in the stock market. The more the topic of investing creeps into our society, the more likely we are to invest in the stock market. It is now much more acceptable to talk about investments. Indeed, investment talk has grown tremendously in our society over the past 20 years. This change has contributed to a big increase in stock market participation. In this regard, investment talk has been good for our society.

This investment talk has had two negative effects as well. The first is the propensity to talk about security selection and market timing activities. Over 90% of our portfolio's return can be explained by our investment policy decisions on how much risk to take and how to allocate our asset between stock, bonds, cash, international securities, and so on. At the margin, the decisions of which stocks to own (security selection) and whether we should temporarily underweight or overweight stocks (market timing) do not contribute much to our return. Unfortunately, we spend most of our time on these decisions and not on the investment policy decisions.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint