In the first part (link to first part), we explored the rather discouraging and often surprising results of a survey on investment decision-making among students at the University of Economics in Prague (VŠE) and the University of Finance and Administration (VŠFS).

Human Thinking Has Its Weaknesses, Leading to Poor Investment Decisions

Terms like herd behaviour, overconfidence, or fear – all cornerstones of behavioural economics – have become part of the toolkit for anyone studying human behaviour in financial markets. To mitigate the consequences of such decision-making mistakes for retail consumers, the EU, and by extension the Czech National Bank (ČNB), has in recent years significantly tightened legal regulations for financial and investment services. Paragraphs, obligations, excessive information, and the related administration have become an inseparable part of every financial advisor’s work.

So, to what extent does this (over)regulation of markets influence investors’ decisions today?

The old saying still applies here: “The road to hell is paved with good intentions.” Overregulation leads savers and investors to believe that regulation will take care of everything for them, relieving them of the need for caution, vigilance, and often even common sense. In fact, 21% of surveyed future economists believe that every bond offering with a ČNB-approved prospectus, even if advertised on social media, is completely risk-free – regardless of the promised returns or business plan!

If that were truly the case, I would invest all my money there without regard for the basic rule of the investment triangle – return, risk, liquidity – and spend my time in the Bora Bora archipelago in French Polynesia. The opposite is true, and I would instead return to my native Europe working as a deckhand in the hold of a container ship.

Some of my clients have also succumbed to enticing offers and now can only hope they will not become future (and unsuccessful) creditors of bankrupt bond issues. Between 2018 and 2022 alone, exactly 60 such issues went bankrupt, with a total nominal value of 1,919,000,000 CZK (€76,760,000).
Source: Seznam Zprávy / Surveilligence

How to Escape This Carousel of Paragraphs, Disclaimers, and Various Warnings?

I’ll borrow a now-famous movie quote: “It’s not on fire! Once and for all, it’s not on fire!” Bonds from various companies or other supposedly attractive and irresistible offers are NOT guaranteed! In essence, they are just a cash loan to a company, most often without any rating, about which – unless you are an expert in financial reporting – you know absolutely nothing except the promises written on paper. Against your own decision, no one and nothing can protect you. But no serious financial advisor will offer you such individual “bargain” financial products – only the sellers of those products will.

A serious financial advisor will always address your finances as a whole, ensuring that everything fits together correctly by:

• setting specific financial goals,

• mapping out resources to achieve them,

• defining the main risks that threaten you on your path to those goals,

• and only then, at the very end, considering specific products.

If you want to experience adrenaline only during sports, on a roller coaster, or on a glass-floor observation deck – and not when looking at your finances – write or call the contacts below. Over a good cup of coffee, I will gladly explain everything and together we will chase away any skeletons hiding in your financial closet.