Computers Still Beat Humans? We Ask, Will Grove Responds.
Overconfidence is the death of everything in investing. I suffer from the problem just like everyone else because last time I checked...I'm human. As humans, we [...]
Recreating Asset Bubbles in the Laboratory
Are we in a bubble? It depends on what asset class you’re referring to, whom you ask, and what you mean by “bubble.” We’ve posted [...]
Have benchmarks made us bad active investors?
Curse of the Benchmarks Vayano and Woolley A version of the paper can be found here. Want a summary of academic papers with alpha? Check out [...]
Can Losing Lead to Winning?
Can Losing Lead to Winning Berger and Pope A version of the paper can be found here. Want a summary of academic papers with alpha? Check [...]
Why do academic researchers avoid behavioral finance?
Charlie Munger, Warren Buffett's right-hand-man and Vice Chairman of Berkshire Hathaway, has said the following regarding behavioral economics: How could economics not be behavioral? If it [...]
Chasing Returns and Avoiding “Spaghetti against the Wall Fund Companies”
Psychology research suggests that when we make predictions, we suffer from “representative bias,” mistakenly overweight observations that fit a particular narrative, and fail to consider base rate [...]
Shocking: Your Experience in the Uterus May Influence Your Investment Decisions!
The Fetal Origins Hypothesis in Finance: Prenatal Environment, the Gender Gap, and Investor Behavior Cronqvist, Previtero et al. A version of the paper can be [...]
Media Coverage and Stock Returns
Ninety Years of Media Coverage and the Cross-Section of Stock Returns Hillert and Ungeheuer A version of the paper can be found here. Want a summary [...]
Can A Brutal Stock Market Make You Physically Sick?
Worrying About the Stock Market: Evidence from the Hospital Admissions Engelberg and Parsons A version of the paper can be found here. Want a summary [...]
The most concise explanation of behavioral finance I’ve ever seen
One of the most overused-- and misunderstood -- terms I've seen used by finance practitioners is "behavioral finance." Many professionals consider themselves to be "behavioral [...]
Money Doctors: Will You Trust Them in a Crisis?
Do you trust your doctor? If you're like most people, chances are good that you do. And why not? What do you know about medicine [...]
Does Science Advance One Funeral at a Time?
A really interesting paper hit the NBER wires recently. The central argument of the paper is that "rock star" thought leaders dominate a field, but [...]
Are Stock Pricing Anomalies Driven by Risk or Mispricing?
Anomalies and News Engelberg, McLean and Pontiff A version of the paper can be found here. Want a summary of academic papers with alpha? Check out [...]
The Secrets of Social Influence: An Interview With Digg and Wharton Professor Jonah Berger
A critical element of being a good investor is understanding human behavior. In this piece we take our focus away from quantitative finance and focus on understanding the [...]
Beware of Target Date Funds – Their Aim May be Way Off
We like to use rules of thumb, or heuristics, when facing choices. We often default to rules of thumb because when finding the optimal choice [...]
All firms can benefit from the positive influence of women
Marisa Mayer’s recent announcement that she is again pregnant, and does not plan to take maternity leave after her twins arrive, has once again raised [...]
New Evidence: Simple Forecasts Beat Complex Forecasts
Always seek to simplify. Occam’s razor teaches us we should cut away any extraneous factors that are unnecessary to explain something. Stated another way, we [...]
How Market Volatility Affects Our Brains
The current market volatility is justifiably causing people stress. Nobody wants to see their hard-earned wealth get vaporized. But how does increased stress affect decision-making? A [...]
The Sustainable Active Investing Framework: Simple, But Not Easy
We cannot overemphasize that identifying sustainable alpha in the market is no cakewalk. More importantly, being smart, having superior stock-picking skills, or amassing an army of PhDs to crunch data is only half of the equation. Even with those tools, you are still only one shark in a tank filled with other sharks. All sharks are smart, all sharks have a MBA or PhD from a fancy school, and all the sharks know how to analyze a company. Maintaining an edge in these shark infested waters is no small feat, and one that only a handful of investors has accomplished. In order to achieve sustainable success as an active investor, one needs not only skill, but also an understanding of human psychology, and an appreciation of market incentives (behavioral finance). We start our journey where mine began: as an aspiring PhD student studying at the University of Chicago. Let the adventure begin... This post is not meant to convert a passive investor into an active investor; however, we do explain why we believe active investing can sustainably beat passive strategies in the long run. Plus, we bring to bear many years of cumulative research and experience to support our arguments. We cannot overemphasize that alpha in the market is no cakewalk. More importantly, being smart, having superior stockpicking skills, or amassing an army of PhDs to crunch data is only half of the equation. Even with those tools, you are still only one shark in a tank filled with other sharks. All sharks are smart, all sharks have a MBA or PhD from a fancy school, and all the sharks know how to analyze a company. Maintaining an edge in these shark infested waters is no small feat, and one that only a handful (e.g., we can count them in one hand) of investors has successfully accomplished. In order too achieve sustainable success as an active investing, one needs both skill and an understanding of human psychology and market incentives (behavioral finance). We start our journey where mine began: as an aspiring PhD student studying under Eugene Fama at the University of Chicago. Let the adventure begin...
Algorithm Aversion — Why people don’t follow the model!
There are many studies showing that models beat experts, including the meta-study "Clinical versus mechanical prediction: A meta-analysis" by Grove et al. (2000). However, given [...]