| Summary: | Most investors are aware and acknowledge that the stock market is cyclical. Why then are some investors able to ride out the market oscillations while others panic, sell and head for the sidelines? As a professional advisor to retail investors, it has become a passion of mine to research this issue. The aims of this thesis were to investigate the critical incidents and related factors that have impacted how retail investors create their view and perception of risk in the stock market. Also, what, if any, impact has this had on their investment decision making. A qualitative study was conducted to help answer the research questions. Critical Incident Technique was employed as the methodology using semi-structured interviews with 24 participants that are all clients of my professional investment firm. Data were then analyzed using the template analysis method made popular by Nigel King (1999). Many critical incidents appeared that showed direct influence on how participants create their view and perception of risk within the stock market. These included major economic events, investing for the first time, as well as personal events such as job loss, divorce, and death. Other critical events included family discussions about investing while participants were younger and whether those were positive, negative, or absent. These incidents along with certain behaviors and their relationship with their advisor enabled participants to feel more or less confident in their ability to handle risk. Critical incidents happen within the lives of every investor that influence and impact how they create their views and perceptions of risk within investing. These events can influence their behavioral choices which in turn can impact their investment biases and impact whether they feel more or less confident in their ability to handle stock market risk.
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