Behavioral Finance

  • 11 Oct
    How This Little-Known Theory Could Bring You Outsized Returns

    How This Little-Known Theory Could Bring You Outsized Returns

    • Stock prices haven’t been following fundamentals for 5 years now. The theory of reflexivity is the only one that can explain what’s been going on.
    • The main message is that as long as the trend is strong, don’t fight it, but reinforce it.
    • If you want to know when the current bubble will burst, focus on the twilight zone.



    Introduction

    One of the best traders and investors over the last 50 years has been George Soros. Whether you like him or not, his track record is something to respect and learn from whenever possible.

    In today’s article, I’ll describe his reflexivity theory in a, hopefully, much simpler way than Soros has described it in his book, The Alchemy of Finance. More →

  • 21 Sep
    Here’s Why You Need To Think About The Current Market Risks

    Here’s Why You Need To Think About The Current Market Risks

    • Evolution hasn’t created us to look at risks in investing, which is something that can be very costly.
    • I’ll discuss in a simple, but straightforward way what the current market risks are to be aware of.
    • If you’re careful, you can earn up to $500k in 20 years on a $100k portfolio.

    Introduction

    Investing is a very delicate thing and few understand that we aren’t wired for success in it. Part of our brain, the amygdala, through millions of years of evolution, has taught us to fight when we might be wrong, to prove our dominance and our convictions in order to prevail and spread our genetics. More →

  • 06 Sep
    How Anchoring Can Destroy Your Returns

    How Anchoring Can Destroy Your Returns

    • You might not be aware of it, but you are under the influence of many things. After all, you are human.
    • Anchoring is really terrible as it makes you take profits too soon and keep your losers. We’ll discuss the post earnings drift effect, loss aversion, and the breakeven issue.
    • Additionally, we’ll discuss 5 ways to eliminate anchoring from your decision making process.

    Introduction

    We’re under the influence of the behavioral finance anchoring concept when we take a past reference point for determining whether a stock is a buy or not. More →