How do you make investors happy? This may seem like an easy question because people who have made money should feel happy. But investors can be a perverse lot.
It turns out that those who have made a profit are not necessarily happy with their gains. On the other hand, when a loss is incurred, investors are not necessarily moved to unhappiness. This happens when, for example, they incur a loss as a consequence of a general market depression. Investors have greater tolerance for such collective losses as opposed to a loss made as a consequence of an individual decision.
Here lies the key to much of the sentiment that pulsates through the world of the personal investor. Investors' sentiments are heavily swayed by the fortunes of others, which in part must be seen as a verdict on their own ability as money managers relative to other investors.
Thus if, say, an investment in company X yields a profit of HK$100 while investment in company Y, which is in a related business, yields a profit of HK$120, investors in X will not rejoice in having gained a profit of HK$100 but sulk that those in Y have gained more. X investors feel they have incurred a 'loss' of HK$20.
The reality is that they have made no loss at all, merely forgone a potential gain. Somehow it is difficult to persuade the dissatisfied investor that this is the case.
At the beginning of this year, investors made spectacular losses in stock markets throughout the world, almost certainly more than would have been incurred in the course of normal trading. However, the fact that these losses affected more or less everyone else in the market went a long way to mitigate the pain.