Does Wisdom of Crowds apply to earnings estimates, price targets, value estimates and stock prices?
The behavioral tail can wag the statistical dog
investment psychology
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.
Investors are more anxious about the economy than at any time in recent memory – true or false
He’s encouraging a kind of groupthink or social proofing. He tells us that everyone he talks to says there’s more reason for anxiety than in recent memory. He is inviting us to believe it is true.
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.
A coward’s primer for investors per Paul Samuelson
Kahneman is telling us that an ordinary person might, without being thought silly or irrational or cowardly, reject the single bet but decide to take on the 100-bet game.
Strategic thinking, plans and a punch in the mouth
And here’s the difference between the bursting of true stock market bubbles and other stock market routs. When the Dot Com bubble burst it took many many, years for the fallen to recover.
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.
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