Comments on: People Suck at Investing http://www.mebanefaber.com/2009/06/09/people-suck-at-investing/ Engineering Targeted Returns and Risk Thu, 11 Mar 2010 03:04:38 -0600 http://wordpress.org/?v=2.8.2 hourly 1 By: macclary http://www.mebanefaber.com/2009/06/09/people-suck-at-investing/comment-page-1/#comment-2602 macclary Thu, 11 Jun 2009 21:36:58 +0000 http://www.mebanefaber.com/?p=1400#comment-2602 Keep in mind that mutual fund investors don't make up the whole market, there are also other players. It would theoretically possible to bring fund investor's returns closer to parity with institutional investors through some type of behavioral lobotomy.<br><br>Also it seems like more effective and less fickle capital market participants would lower the cost of capital, lower risk, and increase the growth of the economy. It just seems like it would be great for the economy if retail investors would invest for the long term in companies that could be the next Apple, instead of losing money on zero sum bets with regard to the direction of AAPL tomorrow. Keep in mind that mutual fund investors don't make up the whole market, there are also other players. It would theoretically possible to bring fund investor's returns closer to parity with institutional investors through some type of behavioral lobotomy.

Also it seems like more effective and less fickle capital market participants would lower the cost of capital, lower risk, and increase the growth of the economy. It just seems like it would be great for the economy if retail investors would invest for the long term in companies that could be the next Apple, instead of losing money on zero sum bets with regard to the direction of AAPL tomorrow.

]]> By: EricC http://www.mebanefaber.com/2009/06/09/people-suck-at-investing/comment-page-1/#comment-2597 EricC Wed, 10 Jun 2009 17:21:08 +0000 http://www.mebanefaber.com/?p=1400#comment-2597 Excellent information in this study. The behavioral finance stuff is fascinating but I wish somebody would address the theoretical impact that a mass behavioral change would have. If everybody started investing “correctly” they would not start magically outperforming, or even keeping pace with the market beta. The definition of “correct” would simply change. Mathematically speaking, most participants have to underperform the beta, especially after fees, slippage, taxes, overhead, etc. The tone of behavioral finance seems to be that you can somehow change the aggregate return to investors by changing their behavior. I don't think that's true. There's a certain amount of risk to be transferred and a certain amount of premium to be collected. Changing the behavior of the risk takers doesn't alter the finite nature of what's available. Advise on investing can only alter the outcome by favoring some risk takers over others. Excellent information in this study. The behavioral finance stuff is fascinating but I wish somebody would address the theoretical impact that a mass behavioral change would have. If everybody started investing “correctly” they would not start magically outperforming, or even keeping pace with the market beta. The definition of “correct” would simply change. Mathematically speaking, most participants have to underperform the beta, especially after fees, slippage, taxes, overhead, etc. The tone of behavioral finance seems to be that you can somehow change the aggregate return to investors by changing their behavior. I don't think that's true. There's a certain amount of risk to be transferred and a certain amount of premium to be collected. Changing the behavior of the risk takers doesn't alter the finite nature of what's available. Advise on investing can only alter the outcome by favoring some risk takers over others.

]]> By: Tommy Sikes http://www.mebanefaber.com/2009/06/09/people-suck-at-investing/comment-page-1/#comment-2594 Tommy Sikes Wed, 10 Jun 2009 13:16:09 +0000 http://www.mebanefaber.com/?p=1400#comment-2594 I told this information to a business networking group today. Everyone had confused looks on their faces. What about the 10% average return my stockbroker told me about. Or how well my mutual fund did over the last 10. Most investors unfortunately will never learn. I think people like to get sold stuff. They like the stories they're told. I told this information to a business networking group today. Everyone had confused looks on their faces. What about the 10% average return my stockbroker told me about. Or how well my mutual fund did over the last 10. Most investors unfortunately will never learn. I think people like to get sold stuff. They like the stories they're told.

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