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4 pill
chap 7
| 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 |
Created by:
delorya
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