Forget following the crowd, this is a long-term opportunity smart investors can capitalize on investinyou (In partnership with acorns.)
One successful way to beat the stock market is to identify overlooked and undervalued opportunities instead of following the crowd.
A major source of mispricing often tends to be behaviorial. In the modern world, we rely on our savings for survival, so when we're investing, it triggers prehistoric instincts that were meant to protect our ancestors in the wild, but which aren't particularly useful in the modern world. These behaviors may cause us to take too much risk, too little risk or simply the wrong risks, all at the wrong times.
There's still a lot of debate among market participants about whether ESG or sustainable investment practices can add value to investors' portfolios. The patience premium concept suggests that the mispricing of ESG ideas may be a positive contributor to long-term portfolios, partially because short- term investors will tend to overlook them.
"Fluency" is the name for a behavioral bias that causes us to value things more highly if they are easier to mentally process, and to undervalue things that are complex or uncomfortable. It is challenging to think about the hurdles that companies must cross to thrive in a sustainable future, but investors should always cheer when we identify ideas that others are systematically undervaluing, because we can hope to gain by positioning ourselves on the other side.
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