Impact of Emotional Biases on Investment Decisions

As a portfolio manager at a boutique investment firm, you have observed that many clients display significant emotional biases, affecting their investment decisions and overall investment performance. One particularly notable case involved a long-term client, Mr. Thompson, who has expressed a strong aversion to selling shares of XYZ Corp, despite its consistent underperformance. Additionally, he shows a pattern of buying more shares during market rallies due to overconfidence in his investment choices.

In a well-developed essay, analyze the impact of emotional biases on Mr. Thompson’s investment behavior and decision-making process. Discuss how these biases may lead to suboptimal investment strategies, and propose specific strategies to help Mr. Thompson mitigate these biases. Consider the implications of emotional biases on portfolio performance and wealth planning in your response.