By Paul Hutchinson, Sales Manager, Ninety One
Loss aversion is a powerful concept in behavioural finance*. Simply put, investors are believed to feel the pain of loss twice as strongly as the pleasure of gain.
Unfortunately, this theory is proven true time and again during market corrections such as we experienced this year. Unable to stomach losses, many investors panic and switch from their growth investments to cash, thereby crystallising what was until then only a paper loss.