Halo effect in finance

The halo effect ("Heiligenschein-Effekt") is the tendency to infer other qualities from a positive impression – even though there is no connection.

In finance:

• "Apple makes great products, so the share must be a good investment"
→ Wrong! A good company can be a bad share (if it's too expensive)

• "The bank adviser has a nice office and wears a suit – he knows what he's doing"
→ Wrong! Competence has nothing to do with appearance

• "This fund made +25% last year – it'll do it again"
→ Wrong! Past performance is NO guarantee of future performance

• "Tesla builds innovative cars – so Elon Musk is a good financial adviser"
→ Expertise in one area doesn't transfer to others

Remedy:

✅ Separate the quality of the COMPANY from the quality of the SHARE
✅ Look at the figures (P/E ratio, cash flow, debt), not the image
✅ ETFs avoid the problem completely – you buy the whole market