A Comment -- General Comments From an Expert (A Commentary)

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Compounding and Exponential Growth. Compounding is essentially the same concept as exponential growth, and can be very beneficial to investors. An example of compounding using finances is the idea that if one were to double a penny every day for 30 days consecutively, the end result would be roughly $5,400,000. The interesting thought experiment with this example is that now knowing the end result is $5,400,000, naturally one would assume that the individual would have roughly $2,700,000 by the mid-point at day 15. However, the investor would have only accrued $164 by day 15. The lesson is that consistent investment returns can add up if given enough time. Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Investing Psychology Mistake: Representativeness Bias. The representativeness bias is a misconception that future patterns will resemble past ones. An investor may identify an investment as being good or bad based on its most recent price performance. This is why increases and decreases in share prices can often become overextended. If the price of a stock continues to climb higher, then investors may feel that this pattern will persist into the future, and this drives the price up further. Vice versa when stock prices decrease, as investors may feel that they will only continue to fall further. This cognitive bias helps us to explain our general belief that the sign of a top in price is when investors feel that the stock can only go up and the price decreasing is not a possibility, and the sign of a bottom is when investors feel that the price can only decrease further, and no mentions of a rebound are in sight. These types of behaviours occurred at the bottom of the stock market in 2008 and 2020, as investors sought lower prices and were using the most recent performance as an indicator for the future. Unlock Premium - Try 5i Free