Скачать или смотреть Tracking Error Regret in Investing

Tracking error regret refers to the regret that investors may feel if their particular strategy underperforms a benchmark over some time period. This regret can be dangerous because it can lead to financially harmful things like market timing, emotional trading, or switching to a different investing strategy altogether at precisely the wrong time. For example, a US investor who is globally diversified may feel dissonance over the fact that international stocks have outperformed the US in only two of the ten years between 2010 and 2020. Though there are plenty of rational reasons to diversify internationally in stocks, the decade prior was basically the opposite. A US investor would have regretted not being globally diversified. Notice how this is closely tied to recency bias, since stocks have the greatest expected returns of all investable securities. Tracking error regret has the potential to be more prevalent in bull markets as one diversifies into other assets with lower expected returns over the long term, such as bonds, gold, etc. when compared to a popular benchmark that is 100% stocks.

#investing #behavioralfinance #biases

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