Understanding Behavioral Economics: How to Beat the Market
Podcast: Understanding Behavioral Economics – How to Beat the Market
[00:01 – 13:24] Behavioral Finance and the Stock Market
- Human beings are influenced by biases and these can lead to mistakes in investment decisions
- The efficient market hypothesis and why individual investors cannot outperform the market
- Crowd wisdom on making accurate predictions based on the collective knowledge
- How the measure of free cash flow and the discount rate of an evaluation are affected
[13:25 – 39:06] Beware of Systematic Investor Bias
- The levels of happiness based on gains and losses relative to a reference point
- Risk-seeking behavior has profound implications on markets and security prices
- How revenues and debt levels do not become indicative of distress
- Beware of value trap companies – looking promising but may be eroding rapidly
[39:07 – 41:29] The Importance of Disproving Your Own Views
- Markets are a lot more efficient than a lot of active managers realize
- Start out most investment thesis from a bearish perspective and disprove the bearish thesis
- To not be overly optimistic that the market’s just throwing out great opportunities all the time
[41:30 – 42:57] Closing Segment
- Email Jeff and check out his website.
https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555 (Thinking, Fast and Slow by Daniel Kahneman)
Brian’s Linkedin: https://www.linkedin.com/in/brian-c-adams/
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