It’s no secret that investors tend to chase investment performance, in fact most mutual funds and investment companies count on it. Flows into mutual funds are highly correlated to the funds performance in the prior four quarters. Thus, investors piling
Illusion of Control is the deeply held belief that we can control the otherwise uncontrollable. It is the same behavior that a person shooting dice might exhibit. They will throw it harder, blow on the dice, hand them to a
Mental accounting occurs when a person views various sources of money as being different from others. This looks different for different people, but a few examples are money earned at a job may be viewed differently than money from an
Unfortunately stocks aren’t basic, and they are the single most important and predictable way to expand your net worth. So here is our take: We are fundamental investors, we believe that to determine the value of something you have to
Today is the last day that Tesla will not be part of the S&P. S&P Dow Jones Indices has announced Tesla’s addition Friday after the market close. Tesla will officially trade as a member of the S&P 500 by the
Hindsight bias is reading beneficial past events obviously predictable, and bad events as not predictable and without cause (called black swans). In the decade between 1999 and 2009, we have many explanations for poor investment performance. Brokers and talking heads
The bandwagon effect, or groupthink, describes gaining comfort in something because many other people do the same. After all, “there is safety in numbers” correct? This is a falsehood. But let’s separate bandwagon-ing, from conventional wisdom. There is value that
Information bias is the tendency to evaluate useless or the wrong information when determining value. It’s the belief that certain commonly held data points are helpful in understanding the value of an investment, when they may not be. The key
Confirmation bias is the natural human tendency to seek specific supportive sources, or overemphasize information confirming our decisions. People will often come to a conclusion, then seek information confirming the decision. Think about buying a car, once you bought the
This is the belief that you own a “winner” and you will keep that winner for reasons that aren’t justified by the return. Owning companies is fun, and investors like to celebrate their victory over the market by stashing great
Loss aversion is the tendency for people to strongly prefer avoiding losses at the detriment to obtaining gains. This puts an unnecessary fear on an investment not supported by the risk prima. This might be one of the most common
