The Dangers of Myopic Behaviour

Sequoia Capital Management
13 November 2022
5 min read

Myopic behaviour describes the actions of an investor who acts solely on the basis of what he or she wants right now. In other words, investors are myopic when they are primarily concerned with short-term gains and do not consider how a particular move may influence them in the future. They can't see the long-term consequences of their current decisions.

Most investors have a multi-decade time horizon. Whether they are just starting to save, are mid-career, or are already retired. Short-term market movements and news should not affect investors with a long-term time horizon. Myopic investors focus on short-term price changes rather than long-term fundamental value.

What drives myopic behaviour?

The perception of control influences myopic behaviour. The logic behind it is that investors believe the latest news and market data have "leveled the playing field." Allowing them to make investment decisions to maximize their chances of achieving their financial goals based solely on information that was previously only available to investment professionals. The fundamental problem with this illusion is that investment decisions are often based on performance results.

But the lack of solid reliable data makes it difficult for investors to use that data accordingly when making an investment decision. You cannot rely solely on recent performance data; an unexpected change in interest rates, currency rates, or any other short-term event might flatten or decrease investment returns temporarily.

The costs of myopic behaviour

The effects of myopic behaviour may satisfy a person's short-term emotions and desires, but they come with psychological and financial costs. Constantly evaluating short-term market trends not only causes undue stress for investors but also causes them to abandon their long-term investment strategies as they switch and reallocate investments in response to the latest news, instead of staying invested.

In addition, myopic behaviour can lead to a significant reduction in future returns. Access to more information and technology has not improved investor performance over the last couple of decades. US research has found that, on average, investors earn significantly lower returns than the funds in which they are invested.

During volatile times, financial advisors who have myopic clients may receive more calls and must do a lot of handholding.

We are a strategic partners and shareholders in Sequoia Capital Management, who is a boutique discretionary fund manager, with a core specialization in discretionary investment management, who have partnered with us, adding value, solutions, and service. Sequoia discusses the dangers of myopic thinking, which describes the actions of an investor who acts solely on what they want immediately without thinking long term.

The NMG SA Group of Companies are authorised financial service providers t/a NMG Benefits


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