Investments, tenth edition

  MUSTERING COURAGE 

 Whether you need to buy stocks or buy bonds, it takes con-

fidence to act. And right now, investors just aren’t confi-

dent. “There’s this status-quo bias,” says John Nofsinger, 

a finance professor at Washington State University in Pull-

man, Washington. “We’re afraid to do anything, because 

we’re afraid we’ll regret it.” 

 Once again, it’s driven by recent market action. When 

markets are flying high, folks attribute their portfolio’s 

gains to their own brilliance. That gives them the confi-

dence to trade more and to take greater risks. Overreacting 

to short-term market results is, of course, a great way to 

lose a truckload of money. But with any luck, if you are 

aware of this pitfall, maybe you will avoid it. 

 Or maybe [this is] too optimistic. “You can tell some-

body that investors have all these behavioral biases,” says 

Terrance Odean, a finance professor at the University of 

California at Berkeley. “So what happens? The investor 

thinks, ‘Oh, that sounds like my husband. I don’t think 

many investors say, ‘Oh, that sounds like me.’”   

  Source:  Jonathan Clements,  The Wall Street Journal Online,  

June 23, 2004. © 2004 Dow Jones & Company, Inc. All rights 

reserved worldwide. 

 WORDS FROM THE STREET 

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  Equilibrium in Capital Markets