darkness wrote:
- quote -

I like Dreman's tongue-in-cheek "Investor Overreaction Hypothesis." And
I do think personality factors in...you see a guy who came through the
standard pipeline, drives a leased Merc, wears Hickey Freeman, generally
is a pay-full-price kind of guy, etc etc...and he's going to come up
with some unique investing ideas that defy the conventional wisdom?
How's that going to happen?

But really there's a lot of money managed in those conventional kinds of
ways. I remember a presentation by a big growth-fund manager where he
basically read the stocks from the quarterly report and said, "we buy
the leader in every field" - you know, Nokia, Cisco, Intel, etc.
Somebody asks about the Nifty fifty and he actually says no, valuation
isn't a problem, winners are winners and we only buy winners. This is in
late 1999.

So I think there's definitely stuff to exploit, I just doubt it will
ever be reduced to a usable science - that's sort of the point, a lot of
it lies in the irrational side of human behavior where you can look
forever for patterns and rules and come up empty. It strikes me a bit
like "Engineering the Perfect Joke." I know people have actually done
that kind of thing but I don't think anyone genuinely funny has come out
of it.

- quote -

See, that's what scares me, the last thing I want is to drive up and see
an even five cars at every toll booth. That's the day I stop picking
stocks! Of course that will never happen (the toll both thing that is).

-Tad

"Blind Broccoli" <blindbroccoli[at]yahoo.com> wrote in message news:<a0mab.7653$UN4.845[at]newsread3.news.pas.earthlink.net> ...
- quote -

Amos Tversky sadly died. Kahneman won the Nobel prize last year (?)
and is still very active (as a psychologist, rather than an
economist). Thaler is the leading light of the behavioural
economists, although there are a number of other names out there:
Hirst Sheffrin, Andre Schliefer (not a behaviouralist per se), Werner
de Bondt. Akerlof had quite a list of economic implications of
deviations from rational behaviour .
(G.A. Akerlof, 'Behavioural Macroeconomics and Macroeconomic
Behaviour', American Economic Review, Volume 92, 2002, pp. 411-433.)

The grandfather of all of this, in many ways, is Herbert Simon who
held professorships in psychology, economics and computer science at
the same time at Carnegie Mellon. He invented the concept of 'bounded
rationality' (ie we cannot know everything, so we use 'heuristics' aka
rules of thumb to make decisions). A PE ratio is a very good example
of a heuristic.

"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote in message
news:uad92dbys.fsf[at]animato.arlington.ma.us...
- quote -

At the moment I am reading Why Smart People Make Big Money Mistakes-and How
to Correct Them: Lessons from the New Science of Behavioral Economics by
Gary Belsky and Thomas Gilovich. It's a good introduction though the
writing is a little simplistic; it's a for-the-masses book. In it they
reference some of the important behavioral economists although there's no
bibliography as such. The chief academic forerunners were Amos Tversky and
Daniel Kahneman, a current leading light is Richard Thaler.

BB


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Rich Carreiro wrote:
- quote -

Rich,
"Irrational Exuberance" by Shiller is a good start, it's a
for-the-masses kind of book but runs through some of the basic topics.
Also most libraries have it (this isn't one you'll go back to). I think
it could have been trimmed down to 1/4 its size, but he was trying to
get the thing out before the Nasdaq crashed, so I guess it's understandable!

Actually, that's a theme in BF books...Shefrin's "Beyond Greed & Fear"
has a kind of academic tone to it, but ultimately there's a lot of
editing that didn't get done. It is the single most comprehensive book
I've read on the topic & I think it's worth reading. But there's a good
amount of fluff...the Jargon Meter definitely hits a 10. So much so that
I started writing down terms at the back of the book, here are some of
the dozens: representativeness, self-attribution bias, myopic loss
aversion, heuristic-driven bias. Maybe he's a psycologist - where
there's a lot of terminology used for shorthand - but I am suspicious
when simple concepts ("relying on rules of thumb") are restated in
complicated terms ("heuristic-driven bias") to make the content
inaccessible to the outsiders to the field. "Don't you just mean...?"

Shorter and better I think is "The Winner's Curse" by Richard Thaler,
which is as much an economics book as a BF book. It has short pieces on
a range of topics like closed-end funds, betting on the ponies, stock
market calendar effects. It's actually pretty interesting and can
reframe your thinking about things like - well - auctions, for example
(title refers to the idea that winners of certain types of auctions are
likely to have overpaid).

Also I'd recommend "Inefficient Markets" by Andrei Shleifer, which of
these four is probably the most advanced. It doesn't cover as many
topics but does them more in-depth, and includes a greek-letter-filled
"model for investor sentiment" and "noise-trader" model that would fit
right into Sharpe's "Investments."

I also have to mention David Dreman's "Contrarian Investment Strategies"
which doesn't use the term behavioral finance, but was an early book
talking about some of the basic themes (overconfidence in analyst
predictions for example). One thing I like about Dreman is that he
actually manages money (so does Thaler). Shleifer's writing is a bit
like Sharpe, or maybe Soros. Shefrin's has a bit of an "outsider's" ring
to it, like the guy who memorized all the baseball cards but never swung
a bat.

Speaking of Soros - "Alchemy of Finance" is related to BF, because some
of his approaches to investing exploit the missteps that the BF folks
talk about. If only for his "reflexivity" chapter I think it fits into
the whole BF reading list.

One general comment on all this stuff...I think BF may be a lot of old
ideas bundled up in new terminology. If it's a science, it's a pretty
"soft" one!

-Tad

Books on Psychology and Behavioural Finance:


Martin Pring - Investment Psychology Explained

Mark Douglas - Trading in the Zone

Ari Kiev - The Psychology of Risk

Gustave Le Bon and Charles Mackay - The Crowd/Extraordinary Popular
Delusions and The Madness of Crowds

Hope this helps.

_____________________
Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote in message news:<uad92dbys.fsf[at]animato.arlington.ma.us> ...
- quote -

While I haven't decided what I think of behavioral finance yet,
I would like to read more about.

Can anyone recommend some good books on it? They need not
be your standard for-the-masses books. As a datapoint, I'm
perfectly comfortable reading something like William Sharpe's
_Investments_ textbook.

For-the-masses books are fine, too, if they're pretty good.
Just don't limit recommendations to them, that's all.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us