Practical analysis for investment professionals
10 October 2014

Weekend Reads for Finance Pros: Trading on Fear, Robo-Advisers, and Retirement

Posted In: Weekend Reads

Earlier this week I was reading MarketPsych’s newsletter, “Ebola, Hong Kong, and Trading on Fear,” when a sentence jumped out at me: “Our ability to trade against fear is, in large part, genetic.”

Richard Peterson, a medical doctor, writes: “Several traits influence how we take investment risk, including personal background, life experiences, age, and gender. Gene-environment interactions are also important. But primary among these influences is our personal genetic endowment.”

Peterson cites a study that examined the investing habits, genetics, and beliefs of a group of 60 retail investors. “They showed that all factors have some explanatory power over investment risk-taking, but that genes appear to be the strongest contributor. Our genes — an element out of control — determine the majority of our financial risk taking.”

It’s a dramatic conclusion. “It’s disturbing to discount the valuable notion of free will,” Peterson says. “But it’s only when we recognize that much of what we THINK is in our control actually is not, that we can we then accurately forecast and plan for our errant investing behaviors.”

“Meanwhile,” he notes, “the vast herd of investors is reading news and reacting in a knee-jerk biological manner. And the savvy (and self-controlled) investor can take advantage of the surges of market fear and relief.”

One topic that prompts a knee-jerk reaction? The Ebola outbreak. As this cartoon aptly illustrates:

Here are some other interesting reads, in case you missed them:

The Business of Advising

Investing

Elder Care

Statistics

  • “Bayesian statistics are rippling through everything from physics to cancer research, ecology to psychology,” writes F.D. Flan in “The Odds, Continually Updated.” “Enthusiasts say they are allowing scientists to solve problems that would have been considered impossible just 20 years ago. And lately, they have been thrust into an intense debate over the reliability of research results.” (New York Times)

Retirement

And Now for Something Completely Different

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/JLGutierrez

About the Author(s)
Lauren Foster

Lauren Foster is a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

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