Human behaviour seeks to identify patterns in outcomes and react according to intuition, even if it is faulty. One of the best examples of this lies in how people choose to wager on an outcome based on observation. Astute mathematicians have dismissed such behaviour as being fallacious and investors should take note.

‘Anchoring’ can be most detrimental to the best interests of investors; it is, in fact, something we all have a tendency to do, and which we should almost always try to avoid. It is the tendency to evaluate buying and selling decisions around a specific number which emotionally latches itself into our minds based on dangerous misconceptions.

Academic studies conclude that investors are far from uniformly ‘homo economicus’. Investment behaviour is influenced by compelling factors other than rationality. The example below supports the view that much investment behaviour is emotional.