Scenario #1: Kenny is ready to implement the investment policyportion of his financial plan. After months of dragging his feet,he began by allocating into a well-diversified portfolio that hisfinancial planner artfully crafted for him, across a myriad ofasset classes. Days after he invested into his portfolio, inaccordance with his long-term goals and risk profile, the stockmarket suffered a big drop. The economy wasn’t in peril, or even arecession, but the market just experienced a normal,run-of-the-mill “correction” that happens from time to time overthe short-term. Even though Kenny’s portfolio only has about 50% ofits assets in stocks, he is scared. He feels like he has just beenthrough the ringer, and he is only a few weeks into his long-termplan! How could this be? His planner told him that there would be“days like this,” that his plan is built for the long-term, and itis inline with his goals and risk tolerance. Further, he told Kennythat he will only experience about half of the downside as thestock market itself (since half of his portfolio is out of thestock market), yet he still feels like he made a bad decision. Hewants to sell everything at once, so he picks up the phone, screamsat his planner, and forces him to sell everything that just wentdown. 1) What behavior/bias is present? 2) Why is this behaviordetrimental? 3) What could have been done differently, or whatcould be done differently next time to avoid this result?
