• Cold heart, huge wallet (Emotion destroys more wealth than the worst bear market. How knowing this can make you rich…)

• Counter evolutionary (Evolutionary mental shortcuts that undermine investment success and ways to overcome them...)

• Managing mental traps (Evolution has entrenched behavior that causes disastrous investment decisions…)

• Fear and greed

The dramatic fluctuations in the South African share market over the past year have undoubtedly unsettled many investors. Who isn’t scratching their head at the fact that a market that crashed so spectacularly is now staging a sharp and unexpected comeback?

From a financial planning perspective, these fluctuations are interesting to observe, but are very dangerous to act upon.

Why? Simply because we don’t know what the market is going to be doing next week, next month, next quarter or even next year. If anyone tells you they know, they are lying.

So, if you shouldn’t be worrying about the level of the share market, what should you be worrying about?

There is much research to demonstrate that an investor’s own behaviour is the biggest obstacle to their investment success, and this should be of primary concern to investors.

Behavioural finance

In an area of study called 'Behavioural Finance', energy and resources are now devoted to studying investor behaviour, and from this work many insights about investors have emerged.

At the heart of the constant challenge that investors face, is what can best be described as the 'Bermuda Triangle of Investor Behaviour'. There are three core influences on investor behaviour, the three sides of this particular Triangle.

Failure to heed these influences will undermine your financial plan, encourage inappropriate investment decision-making and raise the chances of your hard-earned savings disappearing into the Triangle. As we know, once something enters the Bermuda Triangle, it simply disappears.

The three sides of the Triangle are, firstly, our responses to peer pressure; secondly, cognitive or mental mistakes we make; and thirdly, allowing our emotions to influence our decisions. These three elements can be a lethal cocktail of influence on investor behaviour and can undo the best-laid financial plans.

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