Welcome to our presentation

BEHAVIOR OF INDIVIDUAL INVESTORS

Serial no. Name ID

1 Sumsul Arafine 18-006

2 Faisal Ahmed 18-012

3 Faria Lisan 18-030

4 Md. Arifur Rahman 18-148

5 Fatema Tabassum 18-172

6 Md. Johurul Islam 18-251

Group Profile

Research indicates on average,individual investors under-perform relevant benchmarks

S&P 500 has generated annualized returns of 9.9% but individual investors

have only 2.5%. More than 7% lower !!!

Why does that happen?

Overall, the poor performance by individual investors can largely be explained by some behavioral biases that influence their investment decision-making processes.

So…the investor’s chief problem – even his

worst enemy – is likely to be himself.

In which shares are

you going to

invest?

In GP, Square, ACI,

BAT and Summit

power

WOW, Have you

done your

investment

research?

Do we need that?

They are popular

company.

Familiarity bias

My friend is making

more money .

My return should be at

least as much as his

return.

Relative wealth

bias

I am going to sell my wining

stocks

My stocks are not doing well

and I am going to retain

those.

Hanging on to

losers and

disposition

effect.

I am going

to call the

day off.

Hopefully it is

going to be a

good day for

treading stock

Investors

attention, mood

and experience

Herding effect: Investors make similar trading errors

because they are actively trying to follow each other’s

behavior.

SellSell

Sell

Sell

Overconfidence Bias: Optimistic assessment of one’s

knowledge and control over a situation.

According to my

analysis share

price will go up

for sure.

Over optimism Bias: Overestimating the likelihood of a good

outcome and underestimating the likelihood of a bad outcome.

90% chance that

stock price will go up

& 10% chance that

price will fall.

Mental accounting: Tendency to separate money

based on subjective criteria often impacting financial

decisions and wellbeing

I’ve won a

gamble and

invested the

money in

Junk bond.

I’m going to

invest my

savings in

T-bill

Recency bias

Law of small

number bias

As market is

bullish for

last few

weeks, so I

am going to

invest

I am going to hold

X’s company’s

share

Why, don’t you know that a

major project of this

company has failed

recently. This may affect

its share price.

I don’t think this

will affect the

share price much.

Anchoring bias

Prospect theory: Value gains and losses differently.

Feel more pain in losing than joy felt in receiving equal

amount of gain.

Option A: NO payoffOption B: 50% Gain $50 and 50% Loss $50Net result: 0={.5*50+.5*(-50)}

Suggestions to overcome those biases.

Follow passive investment strategy: Invest in market portfolio.Seek diverse outside opinion to counter our overconfidence

Stop watching news daily because watching news every day causes investors to react emotionally, rather than analytically and strategically.

Search relentlessly for potentially relevant or new disconfirming evidence.

Follow momentum strategy that says to sell stocks that have low returns and buy stocks that have past high return.

Thank You