Quote for the Week
There are economic agents who make large and predictable mistakes. For example, individuals who invest on their own characteristically make large and expensive mistakes. If we analyse individual transaction in which an individual investor bought a stock and sold another in a single day, it is safe to assume this transaction is not based on liquidity. What determines the individual’s behaviour is the belief that one stock will outperform the other. Now with modern technology we can easily analyse the outcomes of this single-day transaction a year later, and the results are quite astonishing. On average, the stock that a person sold did better than the stock they bought, but it’s not only that it did better — it did better by a large amount. The average is 3.4 percent. These results have been replicated many times over.
This phenomenon leads to a very simple notion: there is an average cost of having an idea for an investor, and the average cost is about 3 percent, which is quite a lot. So, having ideas cost people money, and people have lots of ideas. Individual investors tend to churn their accounts, they tend to trade too much, and that they trade too much seems to be due over-confidence. They believe they know something that they do not know and this is one essential characteristic of human beings, which makes them different from rational beings. — Daniel Kahneman (source)
From the Archives
Last Call
- 11 Things I Learned About Investing – Alchemy of Money
- Acquired Interviews: Charlie Munger (podcast) – Acquired
- Full Return World with Howard Marks and Armen Panossian (podcast) – Oaktree
- Five Reasons Why Writing Is the Most Underrated Investment Skill – Enterprising Investor
- Average is Not the Same as Median – Klement on Investing
- Do Equities Improve With Age? – J. Rekenthaler
- 12 Predictions on the Future of Song Investing – Honest Broker
- The People Who Lost Serious Cash on NFTs – Vice
- The Precarious History of New York’s Iconic Chrysler Building – Smithsonian
- The People Who Ruined the Internet – The Verge
