Search Results for: "behavior"

The Drawbacks of Behavioral Finance During a Market Correction

The stock market got interesting again this week. Volatility is back after having gone missing for the past 18 months or so. I saw the following words spewed across the financial media this week: turbulence, fear, pain, panic, distress, agony. It’s still a little early for all of that. As of the close on Thursday,…

Behavior of the Experts

“Investors are neither rational or irrational. They’re human.” – Jason Zweig Jason Zweig talked with Russ Roberts on the EconTalk podcast this week. I never realized that Zweig helped Daniel Kahneman write one of the best books ever published on behavioral psychology — Thinking, Fast and Slow. Zweig spent two years working with Kahneman on the process and…

How Return Assumptions Affect Investor Behavior

Higher than average U.S. stock market valuations and lower-than-average interest rates would lead any rational individual to assume that future market returns should be lower than average from current levels. This is a reasonable assumption when you consider a simple 60/40 U.S. stock/bond portfolio has just had one of the best five year runs in…

What Interest Rates Can Teach Us About Behavioral Biases

As I’ve stated in the past, one of the hardest things to do in all of finance is predict the direction and magnitude of interest rate movements. The variables involved are seemingly endless. The chart above shows interest rates over the past 225 years. Many use this historical construct to build their forward-looking interest rate…

Can People Really Change Their Financial Behavior?

I’ve been writing a lot lately about personal finances because it seems like every week another report comes out showing how ill-prepared people are when it comes to their financial situation. My friend James Osborne asked me if I really think people can be taught to live within their means. I do think it’s possible,…

The Behavior Gap Financial Plan

“The One Page Financial Plan isn’t about getting things “right.” It’s realizing that you will always get things a little wrong.” – Carl Richards Carl Richards is one of my favorite finance writers. His message is always clear and easy to understand. He doesn’t try to confuse people or use scare tactics. The drawings he puts…

Behavioral Experts Behaving Badly

Rory Sutherland is Vice Chairman at Ogilvy & Mather, an international advertising agency whose founder, David Ogilvy, is said to be the inspiration for the Don Draper character on Mad Men. Sutherland is an expert on behavioral economics and human psychology. Sales and marketing departments were utilizing behavioral psychology on unsuspecting customers decades before it…

Investor Behavior Following Large Gains & Losses

The following is a passage from The Quants by Scott Patterson: Meanwhile, a fund with ties to Nassim Taleb, Universa Investments, was also hitting on all cylinders. Funds run by Universa, managed and owned by Taleb’s longtime collaborator Mark Spitznagel, gained as much as 150 percent in 2008 on its bet that the market is far…

The Most Impressive Behavior Gap in the Mutual Fund Industry

I spend a lot of my time writing about the common mistakes made by investors because I operate under the assumption that cutting down on unforced errors could drastically improve portfolio performance for the majority of investors. The behavior gap between reported fund returns and actual investor returns that results from poorly timed purchases and sales…