The Psychology of Investment – Fear and Greed
The price of any particular investment is equal to the sum of its discounted future earnings. Simple, right? Apart from the little word future, which means that in assessing how much to pay for a particular investment we must employ powers of precognition! Continue reading »
Illusionist Derren Brown recently started a media frenzy in Britain by apparently “predicting” the lottery numbers on live TV. In an alleged explanation of his feat Brown claimed to have averaged the predictions of 24 people, citing Francis Galton’s discovery that the combined estimate of a crowd is often more accurate than any of the individual estimates.
While it’s unlikely this approach can successfully predict lottery numbers, Brown’s trick has introduced a mass audience to the phenomenon explored in James Surowiecki’s The Wisdom of Crowds. Continue reading »
Investment timing is the bread and butter of traders seeking to cream off a few points difference between buying and selling. But what of investors, looking to buy and hold over the relatively long term?
For those focusing upon the longer-term, timing investing is less critical. Continue reading »
“I’ve just inherited $20,000, what should I do with it?”
Of course, this question is impossible to answer without a lot more information about the questioner.
We all have goals – stated or subconscious – and identifying these is the first step in financial (and life) planning. Note the use of goals in the plural. We all have numerous, sometimes competing, goals. It’s quite likely you’ve never actually formally identified your goals; so taking time to analyze what’s driving you can be a valuable exercise. Continue reading »
Much to the chagrin of economists and financial theorists human beings generally don’t behave as though they have computers in their heads, ie we don’t always do what’s most likely to maximize our utility (well-being). Rather, our actions are naturally idiosyncratic. The relatively new study of behavioral economics seeks to understand and describe our innate irrationality.
In Predictably Irrational MIT professor Dan Ariely presents numerous demonstrations of how our shared human nature means that while our actions are often scientifically irrational, much of the time they are common enough to be predictable. Predictably Irrational is both entertaining and accessible to the lay reader. But furthermore its message is enlightening to every (potential) consumer. Continue reading »