Information Overload and Emotional Decision Making

There are over 10,000 publicly traded stocks and 30,000 mutual funds. How can anyone possibly know which are good or bad investments? How can you determine what factors will positively or negatively affect those investments?

We are constantly bombarded with information, performance statistics, and marketing messages about investment options. Every firm tries to convince us that they are the best but their products are virtually indistinguishable from those of their competitors. In the face of so much information and distractions, people understandably resort to making investment decisions based on emotion rather than logic.

Whenever emotions drive decisions, we make bad choices. Individual investors tend to act hastily, selling a stock whose price is falling, or buying one from a company that someone says is “hot.” Even experienced fund managers act on emotion, trading stocks in their portfolios far more often than necessary.