Quote for the Week
One of the enduring features of the findings in behavioral psychology as it applies to finance, a subject I have discussed many times over the years, is the almost complete inability of those who are aware of them to actually apply them. You can attend Richard Zeckhauser’s seminars at Harvard, read lots of articles and case studies, be reminded of how recency bias, or anchoring, or the representative fallacy, or myopic loss aversion impair clear thinking and skew decision making, and still fall prey to them and others of their ilk the moment you are confronted with real world situations…
This is not unusual. Warren Buffett has often noted how any knowledgeable analyst would have pegged the value of the Washington Post at about 5x what it traded at in the 1974 bear market, yet no one wanted it at that price. The 2002 bear market saw some similarly amazing prices. AES traded under $1… Yet fear set its price, as it did those of Nextel, Tyco, Corning, Amazon, and a host of other companies at that time…
I am reminded once again of the quote that sits in the front of Ben Graham’s Security Analysis, from Horace’s Ars Poetica: “Many shall be restored that now are fallen and many shall fall that now are in honor.” (The quote does not say “all” by the way, just “many”). — Bill Miller (source)
From the Archives
- How Much is “Likely” and Other Issues with Probabilities
- Hindsight Bias: I Knew It All Along, Even Though I Didn’t
Last Call
- Useful and Overlooked Skills – M. Housel
- Investing Lessons from the Go-Go Years of the 1960’s – Periscope
- Why Front-Page News Can Mislead Investors – D. Noonan
- Experts vs. Imitators – Farnam Street
- What Shape Does Progress Take? Don’t Assume It’s a Straight Line – Behavioral Scientist
- The Science of Uncertainty – Range Widely
- How Collective Memories can Sometimes be Inaccurate: Investigating the Mandela Effect – Clearer Thinking
- Roger Federer’s 2024 Commencement Address – Dartmouth
- 37 (Or So) Lessons From A 37 Year Old – R. Holiday
- African Elephants May Call Each Other by Name – Smithsonian