We might be too fatigued by all the market gyrations to make rational investing decisions, AllianceBernstein says. Here's what to do instead so you don't make a decision you'll regret:
Have you ever shopped your way virtuously around a supermarket, making smart decisions about healthy, organic, sustainable produce, protein sources, and beverages, only to toss a handful of brightly-packaged candies in your cart as you wait in line to pay, tired out from all your efforts?
The note explores heuristics, the concept made famous by behavioral economists Daniel Kahneman and Amos Twersky. Heuristics are often thought of as shortcuts in thinking: the human tendency to rely on mental models, or rules of thumb, rather than re-creating the wheel every time we’re faced with a new situation.
“Now, after another month of dealing with the pandemic, we are fatigued and fed up,” the authors write. “This activates our fast-thinking brains, and we’re likely to make decisions based on heuristics rather than by working through issues slowly, thoughtfully and deliberately.” Indeed, the fact that stocks SPX, +3.31% are up sharply since the late March bottom is, to some analysts, a suggestion that investors are just falling back on well-worn patterns, even if there’s no rational reason to do so.Also, even if an investment decision is straightforward in one sense, say because it has a simple and clear investment thesis, or a lower fee than its competitors, that doesn’t mean it’s in the best interest of a particular client’s needs.
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