Investing

The 3.4% Cost of Having an Idea The world of personal finance provides a stark, reproducible demonstration of a profoundly costly human tendency: predictable error. Research examining individual investors who held large brokerage accounts scrutinized every transaction they made over several years, focusing on days when an individual sold one stock and simultaneously purchased another. This specific behavior signals a belief that the newly purchased stock would outperform the stock being sold. Using modern technology, analysts later checked which stock—the one bought or the one sold—performed better a year later. The results were not only striking but astonishing: on average, the stock that individuals sold did better than the stock they bought. ...

Introduction It’s a common feeling: financial markets seem impossibly complex, a domain of arcane mathematics and high-speed computers. Or, they’re brutally simple, driven by the raw emotions of greed and fear. For over a century, some of the most brilliant minds in economics and mathematics have tried to discover the hidden “rules” that govern this global game of risk and reward. What they found is often far more surprising and counter-intuitive than we might assume. ...