ARWDWS
One of the first speculative bubbles was the soaring prices of these plants in the 1600s
What are tulip bulbs?
The percent of US large cap active managers who have outperformed the market over the last 20 years
What is 6% (+/- 2%)?
How people frame/value a decision involving uncertainty
What is prospect theory?
When people tend to think they are better than they are at something
What is self-deception?
The emotional joy of realizing that a decision turned out well
What is pride?
What Burton Malkiel considered one of two main methods of investing, focused on what an investment is actually worth
What is the Firm-Foundation Theory (or Intrinsic Value)?
"It's a good company, so the stock should go up" is an example of this kind of thinking
What is first-level thinking?
The stock price we compare with the current stock price to determine whether we have a winner or loser
What is a reference point?
Attributing winners to skill and losers to bad luck is an example of this
What is overconfidence?
The emotional pain that comes with realizing that a previous decision turned out to be bad
What is regret?
What Burton Malkiel considered one of two main methods of investing, focused on the psychic value of an investment
What is the Castle-in-the-Air-Theory (or greater fool theory)? It's worth what someone is willing to pay.
More complex reasoning that considers not just the facts, but also what others believe and how markets have already priced in those beliefs
What is second-level thinking?
Viewing each investment separately vs. viewing a single investment as a part of a portfolio
What is mental accounting?
Why people bet more on an unflipped coin then on the unrevealed results of a previously flipped coin
What is illusion of control?
A predisposition to sell winners too early and hold on to losers too long
What is the disposition effect?
Aggregate returns on stocks over time are derived from these 3 components
What are initial dividend yield, growth in earnings and changes in valuation (P/E Multiple)?
This is likely to lead to above average results if outcomes are favorable, but below average results if outcomes are unfavorable
What is unconventional behavior ("Daring to be Great")?
The way in which a question is asked that can have a strong impact on the answer given or decision made
What is framing?
The tendency for people to believe that the accuracy of their forecasts increases with more information
What is illusion of knowledge?
The tendency to focus on stock purchase price & the recent highest stock price
What is anchoring?
Aggregate returns on bonds over time are derived from these 2 components
What are initial bond yields and change in interest rates?
The world goes off the rails and an investment fails is an example of this
What is wrong for the wrong reason (unlucky)?
Constraints on cognitive resources that force the brain to shortcut complex analysis
What is heuristic simplification?
Two types of overconfidence
What are miscalibration and better than average effect?
A financial penalty due to the disposition effect, in addition to stock gains and losses
What are excessive capital gains taxes?