| Question |
Answer |
| Pillar 3 the psycology of investing |
|
| Are investors rational and behave in the best own self interest? |
No, this is not true |
| behavioral finance |
the study of human nature and how it forces us to make irrational choices |
| conventional finance |
assumes that investors only make rational choices |
| thaylor |
did research on behavioral finance |
| basic errors made by humans in estimating probabilities |
work done by Konoman and Chiverski, |
| t or f human beings are social animals and enjoy sharing their common interest |
true, |
| disney, microsoft & coco cola (large growth companies) |
thought to be the best price to own. this drove up the prices, this may happen even though the stocks are not gaining the investor a return |
| overconfidence |
one of the most common of behavioral errors and comes in the form of 1.you can successful pick stocks by following a few simple rules (you have as much a chance of beating industry as starting as a receiver for the Broncos) 2. picking mutual funds |
| Assumption of the past is predictive of the long term future |
this is an error |
| recentcy |
we tend to overemphesize more recent data and ignore older data even if it is more comprehensive |
| mean reversion |
periods of relatively good performance tend to be followed by relatively poor performance |
| buying hot assets classes of the past several years |
this is bad odds |
| If indexing works so well, why do so few do it? |
because it is boring, you are going to do well, but you are giving up the chance of striking it rich. |
| What is one of the most common investment traits? |
the need for excitement, again this is why many do not index |
| what are the two kinds of risk |
short term and long term |
| short term risk |
this is that knot in our stomachs when our portfolios drop 5% over the short term |
| myopic loss aversion |
a focus on short term dangers and ignoring the more serious long term ones |
| great company, great stock falacy |
one of the most dangerous investment erros of all, companies like coco cola, mircosoft, disney and the like, serious investors do the math, amateurs listen to stories, |
| higilty pigilty growth |
a great looking companies growth is the same as the market |
| In the words of Walt Kelly |
"We have met the enemy and he is us". |
| Pattern hallucination |
maladaptive behavior |
Poultry
