Making sensible investment decisions is difficult. We are subject to a range of behavioural biases. We have to cope with incessant noise around financial markets. We behave in ways that are inconsistent with our long-term investment objectives. So what can we do about it? Show More
Behavioural economics moved into the mainstream when psychologist Daniel Kahneman was awarded the Nobel Prize for economics. Ironically, his work was critical of classical economics. He focused on how human behaviour differs from what economists would expect, from their theoretical viewpoint. (vii) Show More
We asked Nikki Thomas from Alphinity to share one of the useful investing lessons that she has picked during her career. Rather than pointing to a specific rule she says the most useful tip she can give is to make sure you are aware of your own tendencies and biases. “I’m... Show More
Seth Klarman, CEO and Portfolio Manager of the US-based hedge fund, Baupost Group, has been touted widely as “the next Warren Buffett”. The nickname The Oracle of Boston (a reference to Buffett’s “Oracle of Omaha” nickname) has even been used to reference him. However, unlike Berkshire Hathaway, which is a... Show More
When it comes to investing, Australians forego their ‘globetrotter’ reputation and rarely look past local companies. In consumption, however, we are far worldlier and have embraced international brands such as Apple, Samsung, Google, BP and Toyota. Show More
Investor psychology is arguably the biggest determinant of long term investment success, and has a greater impact upon long term investment performance than even asset allocation or stock selection. In this article we look at 6 money making secrets based upon the powerful world of behavioral finance. Show More
A lot has been written about investors’ behavioural biases. But are the types of experienced investors who visit Livewire really biased? If so, what specific investment decisions are impacted? And by how much? And, given that we’re all human, are Livewire subscribers convinced that asset managers can overcome their own... Show More
People often ask Steve Johnson, ‘what’s your edge? What do you do differently that allows you to outperform?’ His answer is straightforward: “we don’t have a big team, we don’t have an informational edge, we are not smarter than the people we compete against.” What they can do though, is... Show More
My advice has been consistent over the years: get your portfolio allocation right and let us worry about the timing. It’s fair to say it’s a piece of advice widely ignored. Show More
The term "volatility” has become a euphemism. What people mean when they say, “markets have experienced some volatility” is that markets have gone down. You never hear a financial commentator bang on about those pesky volatile stocks that are up every single day and breaking new highs. Show More
To paraphrase from an excellent book, The Chimp Paradox; ‘to control your inner chimp, you first have to understand him/her’. This means understanding that your brain makes decisions that are not always in your best interest and the best way to do this set rules around certain behaviours to minimize... Show More
The concept of ‘herding’ is a powerful lesson that investors should not ignore. Herding is the bias that can lead investors to follow the crowd, whether they genuinely agree with what they are doing, or are just scared of being left standing alone. Show More
In my 30 years as an analyst and fund manager, I have seen recurring business situations and patterns of behaviour that often lead to mispricing by the market. This attracted me to the idea of behavioural economics, as a validation of some of these insights. So, like behavioural economists, we are... Show More
If you’ve ever walked away from a property auction shaking your head in disbelief, you will know that emotions can get the better of investors. As rational as we may be, greed and fear are a powerful force that can hijack even the best-laid plans - “I won’t pay more... Show More
DALBAR is a leading research firm who for 21 years have been researching investor behaviour through their annual Quantitative Analysis of Investor Behavior study measuring the effects of investor decisions to buy, sell and switch into and out of mutual funds over both short and long-term time frames. What follows... Show More
Jason Zweig from The Wall Street Journal recently spoke with author, professor, and Nobel Memorial Prize winner Daniel Kahneman, for a brief but interesting interview. In sharing the interview, Zweig has also dipped into his extensive archive of prior interviews and articles – enough to keep even the most ardent... Show More
In the upside-down world logic that applies to much of investing, there are a bunch of mistakes investors often make which makes it harder for them to reach their financial goals. Many of the mistakes investors make are based on common sense rules of thumb that turn out to be... Show More
It’s an inconvenient fact of life that smart people often do stupid things – just ask investors in Long Term Capital Management, the most infamous hedge fund blow-up of the 90s. Morgan Housel from the Collaborative Fund has a couple of suggestions as to why this happens. 1) “Intelligence increases... Show More
Herding is in evidence all around us: in business, in the consumer world and particularly in investing. But why does herding happen? And why do herds often form on the basis of such little information? The answers can be found in something called social proof. Social proof is when people... Show More
Regression to the mean is a technical term for things evening out from extremes; if a variable is extreme on first measurement, it will tend to be closer to average on its second measurement. Our pattern-seeking brains are strongly biased towards causal explanations; this is what makes mean regression a... Show More