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finance 25


Does ‘behavioural bias’ affect investment performance?


Even though most of us believe we are choosing assets rationally, investors often follow the crowd. Perhaps even more so in volatile times, says Martyn Begbour of UBS


At the beginning of the year, UBS Wealth Management held investor forums where UBS clients and experts came together to consider the best ways to invest and grow portfolios against this backdrop of considerable market uncertainty. This year, the focus was about how ‘behavioural bias’ affects investment performance.


As Warren Buffett said, the paradox of investing is that it is “simple but not easy”. It’s simple because the aim is to buy low and sell high. But it’s not easy because our behavioural biases prevent us from making rational investment decisions.


For example, we all have a tendency to follow the herd. If prices in supermarkets are suddenly cut, we think of it as a great buying opportunity. But if financial markets slide, many have an urge to sell rather than buy.


At the forum, UBS asked the audience a series of questions. The two most pertinent were on the EU referendum and Brexit risk and dealing with volatile markets – both had dominant results.


A vote to stay


A significant majority said they would be voting for Britain to remain in the European Union – more than 70%. Just 16% came out


with a clear view that it would be better for the UK to withdraw, with a smaller percentage of undecideds.


This, of course, is not a random sample of the electorate. Opinion polls around the time of the forums were much closer, with only a slight lead for the pro-EU campaign.


'If the vote goes the way most of our clients anticipate, sterling will recover later in the year ...'


“The UBS view at the beginning of the year was that there was a Brexit risk of about 20-30%. But, the level of uncertainty has been highlighted by cabinet divisions since David Cameron’s renegotiation concluded. The referendum outcome will be determined by the 15-20% of the electorate that are currently undecided.” says Martyn Begbour, South West branch head for UBS Wealth Management.


Expect a bumpy ride


As with the Scottish referendum, the markets could be somewhat choppy as we approach the referendum, if the opinion polls remain as close as they are.


“If the vote goes the way most of our clients anticipate, sterling will recover later in the year – the dissipation of Brexit risk should help the currency once the hurdle of the referendum has been cleared,” Begbour added.


Dealing with volatile markets


UBS’s view is that, when markets are volatile, it’s even more important to go back to first principles and stick to an investment process. Opinion at the UBS forums seem to agree – over 80% said they did not feel the urge to pull out of investments when things get choppy.


For Begbour, the key is not just having a process but sticking to it. “We always advise our clients to focus on long-term asset allocation. If you follow a sound investment process, underpinned by solid principles, you are more likely to act in a rational manner when those around you are whipsawed by the market.


“We expect volatility to stay high for the remainder of the year. The world is still in a transition period both politically and financially. The outlook for interest rates and growth is still very uncertain.” he added.


It’s important that calm heads prevail in times of uncertainty. Yes, there are ways to mitigate (and even profit from) volatile markets. But – to reach longer term goals – the important thing is to stay invested and trust the process.


UBS is proud to sponsor the Deal of the Year category at the 2016 Solent Deals Awards.


Details: Martyn Begbour 07887-450664 martyn.begbour@ubs.com www.ubs.com/south&southwest-uk


UBS Investor Sentiment Report 2016 THE BUSINESS MAGAZINE – SOLENT & SOUTH COAST – APRIL 2016 www.businessmag.co.uk


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