When macro headlines get noisy and unit prices drop, the urge to "do something" becomes overwhelming. Should you dump your REITs? Should you reshuffle everything into cash or Singapore banks?
I recently finished reading James Montier’s classic work, Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance. His book offers three practical behavioral lessons that help me put today’s market climate into perspective.
Lesson 1: Macro Forecasting Is A Fool's Errand
The book cites extensive empirical research on expert forecasting, including Philip Tetlock’s famous 20-year study of political and economic forecasters. Tetlock found that expert predictions were barely more accurate than a chimpanzee throwing darts at a board. In financial markets, Wall Street analysts consistently miss market turning points and overestimate long-term earnings growth by an average of 93%.
Consider the macro swings retail investors have had to navigate over the past two years alone:
- 2024: Rates were above 3.0%, and consensus said rates would stay elevated with sticky inflation.
- Early 2026: Rates softened, 3M SORA dropped to 1.01%, and consensus proclaimed REITs were entering recovery mode.
- Late 2026 (Now): Global bond yields and local rates creeping up, market selling off REITs in anticipation of rate hikes and narrower yield spreads between REITs and bonds
Macro shocks do not happen once a decade; they happen multiple times within a short period.
If an investor tries to react to every macro swing, they would be constantly shifting mountains of capital: buying REITs when optimism peaks, selling them when uncertainty sets in, buying banks after they have already rallied, and churning their holdings.
The friction costs alone—bid-ask spreads, brokerage fees, and missing out on dividend ex-dates—quietly destroy compounding. More importantly, because macro forecasting is inherently unreliable, moving capital based on macro forecasts causes a tendency to buy near the top and sell near the bottom.
Sticking to your strategy is not stubbornness. It is the recognition that guessing where bond yields or interest rates will sit twelve months from now is not a viable investment strategy.
Lesson 2: Action Bias and The Goalkeeper Trap
When an investor watches their holdings drop to 52-week lows, their brain screams at them to take action. Montier explains that our primitive emotional brain (what psychologists call System X) cannot distinguish between physical danger and financial losses. It demands an immediate response to stop the pain.
In behavioral psychology, this is known as Action Bias—the tendency to act even when doing nothing is statistically superior.
Montier highlights a fascinating 2007 study by Israeli psychologist Michael Bar-Eli, who analyzed 286 penalty kicks in professional soccer matches:
- Goalkeepers dived to the left 49% of the time.
- Goalkeepers dived to the right 45% of the time.
- Goalkeepers stayed in the center only 6% of the time.
If a goalkeeper dives and the ball flies into the net, they look like they tried. But if they stand still in the center and the ball goes to a corner, they look foolish and negligent.
Investors fall into the exact same trap during market selloffs. When our holdings drop to 52-week lows, selling shares gives an immediate feeling of relief. You feel proactive. You feel like you took control. In reality, selling an asset after it has already fallen 10% to 20% is just diving for the sake of diving. It transforms a temporary price fluctuation into a permanent capital loss.
Panic selling is an emotional reaction to price. Selling quality assets at 52-week lows just because long-term yields spiked to 5.1% is not risk management. It is Action Bias.
Lesson 3: More Information =/= Better Decisions
In our hyper-connected world, investors are flooded with data: daily Treasury auction results, Fed minutes, terminal rate projections, currency swaps, and geopolitical commentary. It is easy to believe that if you just read one more tweet or watch one more Youtube video, you will gain an edge.
Montier dismantles this belief using a landmark 1973 experiment conducted by cognitive psychologist Paul Slovic on professional horse race betters:
- In the first round, they were given 5 pieces of information per horse (e.g., past speed, weight carried, track condition). Their accuracy was roughly 17%.
- In successive rounds, they were given 10, 20, and finally 40 pieces of information. Accuracy remained roughly 17%.
- Their confidence in their picks surged from 18% to 31% with more information.
More information did not make the experts any better at picking winners. It simply made them vastly overconfident.
As retail investors, tracking every basis point move in the US 10-Year yield or parsing every line of commentary is financial noise. It does not improve investment returns; it only increases anxiety and false certainty.
Instead of tracking 40 macro indicators, a conservative dividend investor only needs to verify a handful of essential balance sheet numbers. If core operational metrics remain stable intact, daily fluctuations in market prices will not affect the profits and cash flow these businesses create for investors.
Instead of moving mountains of money with every macro headline, I will be collecting my dividends, reinvesting into solid balance sheets when prices are depressed, and letting compounding do the heavy lifting.
Stay the course, sit back and relax while business takes care of itself. All Huat !!
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