Quote for the Week
Yes, investors are right to be serious students of the markets, particularly the extremes that entice and ensnare, but markets are only part of the recommended curriculum. Know thyself is even more important, and all investors will want to recognize the central lessons of behavioral finance:
- As investors, we overreact to good news and to bad news.
- We believe in hot hands and winning streaks, and that recent events matter, even in flipping coins.
- We are impressed by short-term success, as in mutual fund performance.
- We are confirmation-biased, looking for and overweighting the significance of data that support our initial impressions.
- We allow ourselves to use an initial idea or fact as a reference point for future decisions even when we know it is just a number.
- We distort our perceptions of our decisions, almost always in our favor, so that we believe we are better than we really are at making decisions. And we don’t learn; we stay overconfident.
- We confuse familiarity with knowledge and understanding…
Investors — like dieters and teenage drivers — will be wise not to expect too much of themselves, particularly when superior personal behavior would be vital to achieving superior results. — Charley Ellis (source)
From the Archives
Last Call
- Anthology #4: Warren Buffett – Letter a Day
- Tariff On, Tariff Off – J. Zweig
- Trying to Understand Return Expectations – C. Asness
- Slack: The Key to Resilience in a World that Keeps Breaking – Big Think
- On the Human Need to Do More, and Maybe Even Too Much – WITI
- Do You Worry Too Much About Unlikely Events? – Milkman Delivers
- Investing Amid Trade Wars – Sparkline
- Outliers: Henry Singleton—Distant Force (podcast) – Knowledge Project
- Documentary: Tune Out the Noise (video) – E. Morris
- Acacia: A Legacy of Artistry and Extraction – JSTOR Daily