On 15 March 44BC, the course of history was undoubtedly altered forever when Julius Caesar met his demise at the hands of his senators. They did this to curtail his unmatched power and influence in Rome.
Aside from transforming the political landscape of ancient Rome, and, in turn, the world, the event –often referred to as the “Ides of March” – can also teach you some fascinating lessons about emotional biases when you invest.
Continue reading to discover some of these lessons, and how you can prevent emotion from affecting your investment decisions.
1. Herd mentality could mean you make rash decisions based on emotion
The plot to remove Caesar from power was primarily orchestrated by the senator, Cassius. He was reportedly still loyal to one of Caesar’s old detractors, Pompey, and was jealous of the dictator’s growing power and influence.
Cassius likely knew that he would need the backing of the senate to conduct such a daring act, but at first, many of the other senators feared the consequences and refused to join.
That was, until Brutus, Caesar’s old friend, agreed to join the plot in a conscientious attempt to save the Roman Republic from a dictator. When Brutus joined, many other senators jumped on the bandwagon.
Granted, it isn’t easy to speculate how history would’ve changed had the senators not followed the herd and decided to stay out of the plot. Though, in reality, most of them faced a grizzly end, and their actions may have simply accelerated the Republic’s downfall.
Regardless, it shows how quickly events can escalate when the herd moves in one direction, whether it’s right or wrong.
Similarly, if you follow the crowds when you invest – known as “herd mentality” – this could affect your long-term prospects.
Perhaps one of the more prominent examples of herd mentality is the dot-com bubble in the late 1990s. Many people worldwide invested their wealth into new internet companies when they started becoming popular.
However, many collapsed in their infancy, and investors lost a considerable amount of money as a result.
If you succumb to herd mentality when you invest, you could make rash decisions that don’t align with your personal goals, tolerance for risk, and investment strategy.
It’s essential to remember that just because a company or asset has performed well in the past, doesn’t mean it will again in the future – even if everyone else is investing in it.
As such, it may be worth stopping and closely reviewing the actions of others and then studying the facts for yourself.
If you believe too many people are investing in a particular asset, you may want to ask yourself why they’re doing this, rather than simply jumping on the bandwagon.
2. Confirmation bias can corrupt your view towards certain assets
After the conspirators carried out the plot, Mark Antony – one of Caesar’s most loyal friends and capable generals – fled Rome, but not before giving a rousing speech to the people of the city.
Brutus likely knew that Caesar, and, by extension, Antony, had the support of the people. Even though political rivals had to be swiftly dealt with in antiquity, Brutus let Antony live in a perceived act of honour.
Of course, this came back to haunt him, as Antony later supported Caesar’s heir, Octavian, who eventually formed the second triumvirate and forced the conspirators into exile in Greece. This ultimately led to the demise of the conspirators.
Even though Brutus likely suspected the truth about Antony’s future quest for revenge, he instead made a decision based on his emotions in the moment rather than on facts.
This is called “confirmation bias”, and this sort of view could also hamper the performance of your investments.
Indeed, if you have pre-established beliefs that a particular sector or industry will perform well, you may gravitate towards information that confirms your views.
Additionally, you may ignore evidence that suggests an investment won’t perform as well as you think, leading you to invest in it, or hold onto existing investments, even though there is information suggesting the opposite.
To avoid this bias, it may be worth closely examining your investment beliefs and searching for ways you could be wrong, rather than ways you’re right.
When you’ve considered both sides, you could be in a better position to accurately weigh the facts and make an informed decision.
It could even be prudent to actively seek out contrary advice that challenges your views, perhaps from a financial adviser.
3. Anchoring bias can mean you ignore vital facts
Cassius and Brutus likely believed, in part, that removing Caesar from power would save the Republic. In fact, they may have been solely focusing on recent events – in particular, Caesar’s meteoric rise to power – and pinning the recent failures of the Republic on him.
However, the Roman Republic was arguably already in decline, partly due to widespread government corruption, ineffective economic laws, and the prevalence of private armies.
The conspirators on the Ides of March may have based their entire plot around the belief that Caesar would be the downfall of the Republic. But in reality, without extensive reforms, the republic may have already been doomed.
When you put too much emphasis on a single piece of information over all others, this is called “anchoring bias”, and it can often be seen when you invest.
For instance, you may decide something is a wise decision based on a single piece of information – known as the “anchor” – without considering the other facts available.
If you’re fixed on this anchored information and believe that a share or asset is more valuable than it actually is, this could prevent you from selling it when you realistically should. Over time, this could potentially damage the value of your investments.
To ensure that anchoring bias doesn’t affect your decision-making, opening yourself up to new sources of information that you previously wouldn’t have considered may be practical.
Moreover, you may want to be more critical of the information you’re already receiving.
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Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
