chap 7
Help!
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| Pillar 3 the psycology of investing |
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| Are investors rational and behave in the best own self interest? | No, this is not true
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| behavioral finance | the study of human nature and how it forces us to make irrational choices
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| conventional finance | assumes that investors only make rational choices
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| thaylor | did research on behavioral finance
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| basic errors made by humans in estimating probabilities | work done by Konoman and Chiverski,
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| t or f human beings are social animals and enjoy sharing their common interest | true,
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| 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
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| 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
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| Assumption of the past is predictive of the long term future | this is an error
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| recentcy | we tend to overemphesize more recent data and ignore older data even if it is more comprehensive
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| mean reversion | periods of relatively good performance tend to be followed by relatively poor performance
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| buying hot assets classes of the past several years | this is bad odds
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| 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.
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| What is one of the most common investment traits? | the need for excitement, again this is why many do not index
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| what are the two kinds of risk | short term and long term
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| short term risk | this is that knot in our stomachs when our portfolios drop 5% over the short term
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| myopic loss aversion | a focus on short term dangers and ignoring the more serious long term ones
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| 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,
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| higilty pigilty growth | a great looking companies growth is the same as the market
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| In the words of Walt Kelly | "We have met the enemy and he is us".
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| Pattern hallucination | maladaptive behavior
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