What do you do when a black cat crosses your path?
Maybe you resolutely refuse to pass over the same spot or wait for someone else to make the crossing first. Maybe you shuffle in a tight circle before walking backwards across the cat’s tracks, counting to 13 in a bid to reverse your bad luck.
In truth, you probably do none of these things. But superstitions around black cats persist. To such an extent, in fact, that Cats Protection felt compelled to launch a National Black Cat Day back in 2011.
It falls on 27 October this year and is designed to celebrate the beauty of black cats everywhere, while addressing and conquering the discrimination they face.
A similar day might be useful to dispel investment myths, helping investors understand the subconscious prejudices and biases that inform the decisions they make.
Keep reading for your look at the lessons National Black Cat Day can teach you about the art of unemotional investing.
Superstition, folklore, and biases are often passed down through generations
As Halloween approaches, the link between black cats, superstition, and witches is clear. And superstition and fear go hand in hand.
In 1542, being a witch was made illegal in England, with witch trials peaking in the mid-1600s. The last execution likely took place in 1716, with around 500 taking place in all.
People back then believed that witches could disguise themselves as black cats. In other cultures, black cats are seen as bad luck, with superstitions passed down through generations, often from parents to young children.
Our attitudes to money are also formed early in life, possibly as young as age seven. The views of our parents influence us, as does the economic period we grow up in. It’s important to remember too that our attitudes can change.
Over recent years, for example, there’s been a shift in perceptions around talking about money. Once seen as taboo, the importance of communication is understood now more than ever, helping people of all ages have frank financial discussions.
These shifts can occur in your attitude to risk too, so remember that your risk profile isn’t static either. If you feel like your inherited beliefs might be stifling your investment returns, speak to us now.
Some emotional biases could negatively affect your investment returns
The stories we hear and the superstitions we believe can have conscious and subconscious influences on our lives.
Your attitude to money and wealth could be resulting in some subconscious emotional biases. These might include:
- Herd mentality or trend-chasing bias
When making investment decisions, you might look to see what other investors are doing. If you see large numbers acting in a certain way, you might be tempted to follow suit. Because that many people can’t be wrong, right?
This is herd mentality or trend-chasing bias and it can be extremely harmful. Your investment portfolio is individual to you. It’s also aligned with your goals, timescales, and attitude to risk. So, what’s right for another investor (or group of investors) won’t necessarily be right for you.
- Confirmation bias
If a superstitious person sees a black cat and then trips on the pavement, they might ignore a raised paving slab and blame the cat instead.
Where your investments are concerned, confirmation bias could see you agree only with information that supports your long-held beliefs. Worse still, you might only ever seek out that information in the first place.
This could mean only buying the newspaper that aligns with your political beliefs and values, without listening to other viewpoints. Or holding stock only in the assets or sectors you believe to be profitable, even when the facts say otherwise.
- Loss aversion
As human beings, we are programmed to feel the pain of a loss more strongly than we enjoy the pleasure of a gain.
For this reason, you might subconsciously make decisions based on avoiding losses. This can make you risk-averse and harm investment returns. Successfully balancing risk and reward means accepting that downturns will occur.
As financial advisors with combined decades of experience in financial markets, we can help you stay focused on your goals and ensure that your portfolio always aligns with your risk profile and capacity for loss.
Highlighting and addressing these subconscious biases works
At Globe IFA, we know that being aware of these subconscious biases is the first step in avoiding them.
When Cats Protection first launched National Black Cat Day back in 2011, black and black-and-white cats took seven days longer, on average, to find a home compared to cats of other colours. Now, more than a decade later, black and black-and-white cats spend less time in care. The campaign has paid off!
The same rules apply to your investments. Acknowledging that you might have a subconscious bias toward certain asset classes, sectors, or regions means that you can diversify. Accepting that your ideas about risk are fluid rather than set in stone might allow you to revisit your allocation. And busting the taboo of talking about money and speaking to loved ones (or a trusted advisor), could help you achieve increased returns and see you reach your goal sooner than planned.
Get in touch
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you avoid harmful superstitions and successfully manage your long-term investments.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
