Most retail investors might be confident that they are relying on logical analyses to make investment decisions. But check your investment returns and think again, as a latest survey by Citibank Consumer Group showed that people are actually driven by their emotions and preferences when it comes to money and investing.
"Taiwanese investors appear to display more psychological biases than their Hong Kong neighbors, but less than their Singaporean counterparts," said Vineet Vohra, regional director of investment business for Citibank Consumer Group.
He made the comment at a press conference yesterday while releasing a report conducted by Anil Gaba, professor of decision sciences and dean of faculty and research at INSEAD business school's Asia campus, who examined which factors determine investors' decisions.
The report surveyed 2,591 respondents in Taiwan, Hong Kong and Singapore in April and last month. Citibank plans to use the report to guide its clients toward more appropriate financial solutions.
"Relative to the [rest of the] region, Taiwanese investors are fairly willing to take an investment chance, but feel the most unhappy about an investment decision which results in a missed opportunity," Vohra said.
In contrast, those in Singapore are the most risk-averse when it comes to potential gains, but at the same time the most willing to take risks to mitigate losses.
The report also found that people across the three markets tend to display a higher degree of overconfidence compared with similar reported levels in the US.
This would mean that Asian investors generally overestimate their ability to beat the market and therefore have a tendency to trade too much and too frequently, especially in the case of Singaporeans.
As Taiwan's banking institutions just started exploring the wealth-management market three years ago, the report found that local investors, like their counterparts in the rest of Asia, see financial advisors as sources of "hot financial tips," rather than long-term financial planning.
"I believe this highlights the importance of strengthening communication between financial advisors and their clients" when the wealth-management market is still underdeveloped, said Spencer Wang (
To harness their risk-taking abilities toward more optimal portfolios, Taiwanese investors are advised to engage in more disciplined investing, he said.
"By adopting a disciplined investment strategy for stock selection, we are able to identify companies with an attractive valuation, positive earnings revisions and growth potential," said Patrick Lee (李啟豪), vice president and senior investment analyst at Hong Kong-based Citigroup Asset Management (萬國寶通投資管理).
Another expert suggested that building diversified portfolios and focusing on research can help drive up investment returns.
"Fundamental investment principles like asset allocation and diversification can lead to positive long-term results for all investors, retail and professional alike," said Dokyoung Lee (李度暻), senior vice president and senior portfolio manager at the Tokyo-based Alliance Capital Management.
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