The Realities of Pretend Investing

At the end of November, The New York Times ran an article by columnist and CFA Carl Richards that addresses how the tendency to invest based on emotion rather than reality can be dangerous to the investor. Richards contrasts “pretend” versus “real” investors as follows: “Pretend” Investors “Real” Investors Are drawn in by what they see and hear on television. Would never make an investment decision based on television news. Think it makes sense to… Read More

How the Brain Handles Buying and Selling

We’ve written often about the role that human behavior plays in investing. While logic and reason are contributing factors, emotions hardly take a back seat. In a recent issue of Enterprising Investor, Shreenivas Kunte, CFA, shares some perspective on the different degrees to which buying and selling take an emotional toll on the investor. Human emotions, Kunte explains, originate in our “reptilian”, or less-evolved brains. We are hard wired to avoid the negative and seek… Read More

Your Emotions and the Stock Market

A critical element in successful investing is “how you react to feelings of both discomfort during the market’s fear cycle and invincibility when markets are booming,” writes Marty Leclerc earlier this month for Forbes. During periods when share prices drop, he says, data shows that most investors want to end the discomfort, which is the “root cause of poor investment results.” Leclerc explains why investors react so intensely to market shifts: Our brains are hard-wired… Read More

The “Hurry Up And Kiss Me” Market

The following is an excerpt from the June 3rd, 2016 Validea Hot List newsletter.  Summary:  The financial crisis and Great Recession were incredibly painful events for investors, the financial equivalent of going in for a good night kiss and having your date slap you in the face Because of that, many investors have spent the last several years sitting on the sidelines, not wanting to get hurt again. Seven years of rising stocks and a… Read More

Forecasts are more like “Aftercasts”

New research illustrates how strongly the recent past influences investor expectations, as Wall Street Journal columnist Jason Zweig notes. Research by Professors William Goetzman, Robert Shiller, and Dasol Kim concluded, in Zweig’s words, “that investors’ forecasts regularly look more like aftercasts – projections of the recent past into the future.” The research drew on data from Yale School of Management surveys conducted by Professor Shiller that have collected individual and professional investor forecasts since 1989.… Read More

How Your Brain Hurts Your Returns – And What You Can Do To Stop It

What’s the biggest obstacle to investment success? Validea’s John Reese says it may well be our own brains. “The capabilities of human beings’ brains are staggering,” Reese writes in his latest piece for Forbes.com. “Over the course of many millennia, the development of our brains has allowed us to outsmart dangerous predators, build enormous cities and create complex machines like computers and automobiles. Our brains let us think abstractly, plan for the future and create… Read More