Ignore market noise and boost your investment returns

AUGUST started off poorly for investors. Peak to trough, global equities fell 9.2 per cent, with the losses accelerating in the first three days of August, when they lost 6.4 per cent.

While equity markets have recouped almost all the early-August losses, the earlier sell-off has naturally led to a lot of questions about how investors should respond to such weakness. Are such sell-offs short-term buying opportunities or signs of more sinister things to come? The mistake many investors make is to spend too much time on the second question in trying to answer the first.

We know the emotional pain of losing money is much more powerful than the emotional benefit of making money. We also know our brains are wired for us to give greater weight to negative news or information. This is, in part, because good things happen over a long period of time, whereas bad things tend to be sudden and unexpected.