Behavioral Portfolio Theory Application for a High-Net-Worth Individual

Consider a high-net-worth individual (HNWI), John, who has a diversified investment portfolio consisting primarily of equities, bonds, and alternative investments. Despite understanding the importance of asset allocation, John often makes emotional investment decisions driven by market sentiment, fearing losses more than he values gains. Recent market volatility has increased his anxiety, leading him to overreact by liquidating positions that had performed well in the past, while holding on to underperforming assets with the hope of recovery.

Using the principles of Behavioral Portfolio Theory (BPT), analyze John's investment behavior. In your response, discuss how cognitive biases such as loss aversion and overconfidence may influence his decision-making process. Furthermore, recommend strategies that can help John better align his portfolio with his long-term financial goals while mitigating the negative impacts of these biases. Your analysis should incorporate both theoretical concepts and practical applications relevant to a HNWI's investment strategy.