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

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

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Mental Hurdle When Investing. Anchoring Bias: The anchoring bias is when an investor uses their information from a previous experience with a stock as a reference point for any future data. An example of this is if an investor had the opportunity to buy Stock A at $100 one year ago but did not act upon it and currently the stock price is $300. That investor, now seeing that the price has tripled, may only wish to buy Stock A close to a price of $100, as that is when they first could have bought it. The investor might feel that a share price of $300 is too expensive and that the stock price should come down to $100, however, the investors’ previous experiences are irrelevant to the share price as the company has likely continued to grow and generate revenue and become a more profitable and valuable company. Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Investing Green Flag: The Idea of Value Creation. Value creation can be roughly defined as the idea of adding significant value to the economy in a way that ignores short-term profit-oriented thinking and strives towards achieving success through a long-term vision and increasing the number of benefits to the greater population. In this sense, it is really the opposite of value extraction. We think that both investors and companies that look to achieve a value-creation philosophy can both refine their own beliefs and add value for themselves and others. This gets us to the ‘trickle-down' effect part of value creation, whereby if a company prioritizes adding value to the greater population rather than maximizing short-term profits, then the long-term benefits of this value creation can trickle-down to its investors and others. The impacts of this trickle-down effect can be much greater than the short-term benefits of a value extraction model. Unlock Premium - Try 5i Free