Damned by the ‘halo effect’
Financial advisors are supposed to help us overcome “our worst instincts” about investing, said Bob Frick in Kiplinger’s Personal Finance. Yet many people rely on gut reactions to choose an advisor in the first place. One study by Princeton University found that investors are more inclined to trustâ€¨ well-dressed advisors with prestigious degrees—so much so that they may â€¨neglect to do a background check. Called the “halo effect,” this can have a hellish impact on your portfolio. To truly size up an advisor, scrutinize potential picks based on “investingâ€¨ philosophy, methods, and results”—and always check references andâ€¨ credentials. Yes, you need to get along with your â€¨planner, but don’t fault him for being analytical rather than ingratiating. â€¨
Small stocks are so 2009
Small companies’ stocks have been market darlings for more than a year now, said Kopin Tan in Barron’s. Since early 2009, they’re up 111 percent, versus 79 percent for large stocks. Small-cap stocks often take the lead early in a recovery, but now “their â€¨blistering run may be on borrowed time.” If the market follows the same script that it did during the 2004 comeback, money managers will soon be shifting money away from risky small stocks and into large companies that can withstandâ€¨ rising interest rates and a maturing bull market, while “individual investors gingerly returning to the market” will likewise put their money with the big, familiar names. â€¨
Homes: Why zeros don’t sell
Home sellers trying to grab buyers’ attention should avoid putting zeros in their sale prices, said Jack Hough in SmartMoney. Yet you don’tâ€¨ actually need to drop the price from $400,000 to $399,999 to makeâ€¨ it seem cheaper. In fact, you could even raise the price—to, say,â€¨ $401,298—and try to take advantage of the odd fact that people tend to subconsciously interpret precise numbers as being smaller than round ones. Well-researched by cognitive scientists, this effect has also been documented in the real world. One recent analysis of â€¨thousands of real estate transactions in South Florida and Long Island,â€¨N.Y., found that houses originally listed without zeros did indeed fetch higher final prices than those for which bidding started at a round number.