Does Wisdom of Crowds apply to earnings estimates, price targets, value estimates and stock prices?
The behavioral tail can wag the statistical dog
Part 2: Human Foibles and Investment Decision Making
The Winner’s Curse and Homo Investorus
The world does not operate in accordance with conventional economic or finance theory posited on the notion that people are both rational and selfish.
Let’s face it, we’re really bad at patterns and statistics
In our hunt for the investment guru we get hit with a double whammy of cognitive errors. We see patterns in random data because we, as humans, love to find causes and patterns suggest causes. And, we jump to conclusions on the basis of statistically insignificant data, again, because we love to identify causes.
Why is it so difficult to change our view of things?
When we own a stock, let’s face it, we love to see articles and reports that confirm our positive view of our investment. It’s human nature. It makes us feel good. On the flip side, we tend not to see or notice negative opinions.
The Law of Small Numbers for investors per Daniel Kahneman
The strong bias toward believing that small samples closely resemble the population from which they are drawn is also part of a larger story: We are prone to exaggerate the consistency and coherence of what we see.
The price of risk in equity markets
Mr. Market demands a very high expected return before he will invest in stocks. Whereas Mr. Bond suffers money illusion.
A Daniel Kahneman core achievement applied to investing
Consistent overweighting of improbable outcomes – a feature of intuitive decision making – eventually leads to inferior outcomes.
Danny Kahneman type risk policies for investors
Investor psychology can cause a security to be priced just about anywhere in the short run, regardless of its fundamentals
The Optimism Bias paradox
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful
Managing yourself
Each post has a list of what Daniel Kahneman, a Nobel Prize winning psychologist, calls risk policies and I call gap-to-edge rules.
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