By Doug Nelson, Head of Global Clearing and Prime Services, Convergex
Successful investing is often as much about managing emotions as capital. You can take care of your own mental ups and downs, but how do you address those of your clients? First, you need to set a baseline for expected returns and the volatility associated with those results. Then, you need effective risk management tools – ones your investors understand and agree to – to incorporate into your process. Finally, you need a playbook for understanding investor psychology. There’s only one model for human behavior to win a Nobel Prize – Daniel Kahneman’s Prospect Theory – and that is the one to use.