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Classic Cars: Classic Mistake?

The World’s Most Expensive Hobby (Part 3)

Key Points

  • To invest wisely, you need to define a benchmark before you actually make any investment decisions.
  • Even if you have a benchmark in mind, an active investment philosophy brings a whole host of issues when it comes to tracking investment performance.
  • These issues ultimately obscure the true performance of active investors, which makes it very difficult to figure out if one is investing prudently or not.
  • This obscurity is what likely perpetuates an active investing philosophy; however, over time, this can lead sub-optimal investment performance for the average investor.

Continue reading → Classic Cars: Classic Mistake?

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Beware: This Strategy Could Cause You To Lose Your Shirt.

The World’s Most Expensive Hobby (Part 2)

Key Points

  • Investing is all about finding a balance that works for the long run.
  • Loss aversion can lead to underinvestment, but overconfidence can lead to concentrated bets, and as we’ll explore in this post, overtrading.
  • According to the research of Barber and Odean, overtrading can cost investors about 7% a year in returns on average. Yikes!

Continue reading → Beware: This Strategy Could Cause You To Lose Your Shirt.

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Behavioral Finance 101 (Part 3)

Key Points

  • First impressions matter; whether we like it or not, they guide our behavior and impact our decisions.
  • Furthermore, sometimes our initial judgements are incomplete or based upon a partial understanding of the facts.
  • Primacy Bias is the notion that we often overemphasize initial events over longer-term averages when making decisions about uncertain future events.

Continue reading → Behavioral Finance 101 (Part 3)