Behavioural finance (a.k.a. behavioural investing) examines how psychological factors impact an individual’s investment decisions.
One likes to imagine that investors are rational creatures, but that is often far from the case. I find behavioural finance very interesting in how it explains certain, less logical, investing actions.
Today a look at how investors often keep their losing investments longer than they should. (more…)
Within investing theory, there is a lot of consideration to the Efficient Market Hypothesis (EMH).
That is, how efficient are the investment markets and can smart investors exploit any inefficiencies to profit.
Phil Maymin, an Assistant Professor of Finance and Risk Engineering at the Polytechnic Institute of New York University, provides an interesting take on market efficiency in the video below. (more…)
I have previously written that it is questionable whether professional asset managers can consistently beat their markets.
As such, I normally recommend passive investing for most individuals.
But I did recently read of one way to beat the market. (more…)
My investment philosophy is quite simple.
Most investors should utilize a passive investment strategy, with an emphasis on cost minimization and optimal portfolio diversification.
We have covered my reasoning for this in many posts leading up to today.
In short: (more…)
A company’s market capitalization (commonly shortened to “cap”) is found by multiplying the current share price by the number of shares outstanding.
Market capitalization is useful in comparing companies of similar size.
It is also used as a tool by mutual funds when determining investment style.
So what are the different market capitalization segments? (more…)
Investor psychographic models can help investors determine their own risk tolerance.
Pyschographics refers to the description of an individual’s psychological characteristics. It attempts to classify investors based on their personality traits.
There are a variety of models in use today. I suggest you look at a couple of models to better understand your own investor profile.
In this post, we shall look at the Bailard, Biehl, & Kaiser Five-Way Model. (more…)
The risk tolerance of each individual is different.
It is based on one’s experiences, desires, needs, objectives, and attitudes.
Understanding a person’s unique risk tolerance is important. How investors view the risk and associated expected return of investments will guide their investment strategy.
Today we will look at few questions that shape an individual’s perception of risk. (more…)
Today we look at three common mean investment returns: arithmetic, geometric, dollar weighted.
When analyzing investment options, you will always see at least one of these returns.
It is important to understand them as each may arrive at different results. And different results usually lead to different conclusions. (more…)
In Common Investment Returns we reviewed a few basic measures of returns.
In Assessing Investment Returns we looked at having to analyze returns within proper context.
Today we will see the need to look within the return itself when evaluating true performance.
This is because all investment returns are not created equal. (more…)
In our first look at investment returns, we reviewed a few common return calculations.
If you know the formulas, the calculations are quite simple. The key is to know what is included and excluded from the different returns.
But even with the hard calculations, returns can mean different things to different investors.
Today we will consider some of the qualitative aspects in evaluating investment returns.
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