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Understanding Better How People Really Make Choices

He highlighted an experiment he carried out some time ago at his university where half of the students were given a chit saying they were entitled to a pencil and half did not. The two groups could trade as buyers and sellers.

While traditional economic theory said the market should clear with half the pencils sold at close to a median value. In fact less than a fifth were traded. “One answer is that people have agoraphobia – they don’t like markets and that influences resource allocation,” he said.
He said that there was evidence that people were far more rational when decisions that were immediate and had major implications compared with choices that were remote or minor. “That’s when things fall apart.”

He said that sociology, psychology and brain science had thrown new light on this issue. Social networks are important because they are sources of information and social approval or disapproval is very important in guiding people’s choices. “You get market equilibriums that are markedly different across different social network so there is no unique equilibrium,” he said.

Cognitive psychologists such as fellow laureate Daniel Kahneman have done decades of research into area and highlighted patterns of behaviour that influence how we make decisions.

More here – Lindau Nobel Laureate Meetings

High-Net-Worth Investors Send HF Assets To $2.9T

I know I bang on about this constantly but WTF?

 

The majority of hedge fund managers polled by Preqin saw their assets increase in H1 2014, thanks in part to allocations from high-net-worth individuals, as industry assets hit $2.9 trillion.

A full 64% of the 100 hedge fund managers polled by the hedge fund data provider in June said their assets under management had increased in the first half of 2014, this although 74% reported increasing competition in fundraising over the past 12 months.

More here – FINalternatives

I understand that each investor has different needs but surely the number one need of an investor is to actually make money, not watch their account balance either go backwards or be overtaken by a simple index fund that generates often three times the performance. I really need to go an reread this  to get a grip on why this happens, or start my own hedge fund.

Investment Trend: Are Classic Cars Overtaking Art?

Even though the Ferrari 250 GTO, recently auctioned by Bonhams during the week of the Pebble Beach Concours d’Elegance, didn’t reach the sums speculated but instead sold for ‘only’ 38 million dollars, the growth trend in the classic car market has certainly not lost momentum. On the contrary, more and more people are interested in the investment potential of classic models of Ferrari, Mercedes-Benz, Porsche and other historic cars. At Pebble Beach alone, RM Auctions, Bonhams and Gooding sold automobiles worth some 400 million dollars in just a few days: a record result that again serves to attract new investors. 

More here – Classic Driver

Is America Dreaming?: Understanding Social Mobility

Brookings Fellow Richard Reeves explores inequality and opportunity in America with Legos, using them to explain the chances for economic success of Americans born at the bottom of the economic ladder. Reeves shows the chances that the poorest fifth of Americans have to rise to the top, based on their race, the marital status of their mothers, and their level of education.

 
 

 
 

To Catch A Trader

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QANTAS

I thought it might interesting to have a look at the comparative performance of QAN and AIZ.

Screen Shot 2014-08-28 at 1.02.28 pm

 

 

I am certain there is a thesis for someone on the topic of how to turn a globally well respected brand  into a basket case.

Money Management Quotes

I was going though some old bits and pieces and came across some quotes I had collected from the Market Wizards books.

“[Michael Marcus - another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.”Bruce Kovner

“You should always have a worst case point. The only choice should be to get out quicker.”Richard Dennis

“95 percent of my profits have come from 5 percent of my trades.”Richard Dennis

“That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’”Paul Tudor Jones

“If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.”Paul Tudor Jones

“Don’t focus on making money; focus on protecting what you have.”Paul Tudor Jones

“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.”Ed Seykota

“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.”Larry Hite

“Frankly, I don’t see markets; I see risks, rewards, and money.”Larry Hite

“My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast… Letting losses run is the most serious mistake made by most investors.”William O’Neil

“When I became a winner, I said, ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”Marty Schwartz

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand.”Marty Schwartz

“I realized that this chipping away approach was what I should be doing, not putting myself at a big risk, trying to collect a ton of dough.”Tony Saliba

“I always define my risk, and I don’t have to worry about it.”Tony Saliba

“When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well… If you stick around when the market is severely against you, sooner or later they are going to carry you out.”Randy McKay

“I’ll keep reducing my trading size as long as I’m losing… My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.”Randy McKay

 

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