Applied Portfolio Management - Class 5 - Behavioral Finance
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- čas přidán 27. 08. 2024
- All slides are available on my Patreon page: / patrickboyleonfinance
Todays Class is an introduction to Behavioral Finance.
Books Mentioned
Thinking Fast & Slow by Daniel Kahneman amzn.to/2UFfz2s
Market Sense & Nonsense by Jack Schwager amzn.to/3bwKKDR
Victor Haghani Coin Flipping Paper: papers.ssrn.co...
Ewan Kirk Paper: www.cantabcapi...
Buy Patricks Book Here: amzn.to/2J2kF3A
Visit our website: www.onfinance.org
Follow Patrick on Twitter Here: / patrickeboyle
THANK YOU SO MUCH FOR THIS FREE INFORMATION, 5 vids in and you have officially become my mentor whether you like or not
Now you can start selling courses 😆
literally just spent the last week watching all your videos! thank you for the clarity and great explanations. nice to see someone who isn't an Instagram day trader with forex..lol
31:02 it means people are overconfident in high probability, but still far from certain scenarios, they underappreciate moderate probability events and overly worry about low probability events. Genius concept! Very real, love it, could apply to dozens of things.
These videos are fantastic, thank you Patrick!
Glad you like them!
I recently discovered that I can hold stocks too long. I had 2 that had double digit runs up during the past 8 months. I watched as they gradually lost all the upside and I sold them both at breakeven.
Thanks again for your videos Patrick.
Hi Patrick. Thanks for your videos. I'm 58 and just starting to invest , making mistakes already. I hope with your lessons I can create some wealth in the next 10 years.... thanks again
my advice is, do not follow other people's advice who are also in your position.
The ONLY downside about this video series is that "watching CZcams" doesn't seem that legit on a CV.
Literal goldmine of information though. Appreciate it Patrick.
The man, the legend Patrick Boyle. Thanks for another kick ass video.
Love your work Patrick
drive.google.com/folderview?id=1YP_-yqhS3_exi6Kfo8Gq82qIyMlJy6_V
I’m only about a third into this video, and I’ve already realized that I’m not giving you enough money on Patreon.
This is auch a strange comment. I wonder what you meant by it...
@@ForChiddlers Good evening. Given I wrote it a year ago, I cannot remember specifically what I valued most from the video, but I’m guessing that I found the video to be so useful, that it alone was worth more than the $2-$4 a month I was tipping the creator. Like the time a waiter saved my life by performing the Heimlich maneuver, I realized that he deserved more than the standard 20% cost of the burger I ordered.
@31:09 as I have read the book the weighted function shows the impact of the certainty effect and the possibility effect. the possibility effect as in lottery buyers is where people pay more money for an upgrade from the chances indicating cant happen to might happen and the certainty effect as in taking losing court settlements is where people are willing to pay less for an almost certain event because of the downgrade from will certainly happen to most likely will happen and are therefore ready to pay more for increasing probability to certainty
Day 5 Class 5 I am greatful for what you provided here Mr. Boyle thanks a lot I will say that everyday
criminaly underrated
drive.google.com/folderview?id=1YP_-yqhS3_exi6Kfo8Gq82qIyMlJy6_V
One thing about indexing, is that it is all about the quality of the index, notwithstanding Goodhart's law and Soros' reflexivity. We are usually quick to presume *everyone, everywhere* is trying to beat the S&P, which is indeed hard.
However, if you choose a more rudimentary index, such as Brazil's Ibovespa, most funds tend to outperform it by far (which in turn grants them juicy returns on anything that exceeds it). What this means, for Brazil and perhaps other un-developed economies is that it is indeed best to move away from the index and go for stock funds or others, simply because the index sucks.
Not to mention that if we change the components of an index, it may no longer hold true to the idea that you "can't beat the market", which is immensely based upon data from the USA and some other developed economies - even so, I'd like to see how well funds perform when trying to beat, say, the FTSE or EuroStoxx or CAC (of course, while using only stocks that are available within each bourse).
The following article lists the funds that managed to beat the Ibovespa index by the largest margin, which includes some 300 to 400 percentage points, since the index *is* quite useless. There indexes that are harder and easier to beat, we can't just take the S&P and use it as a general rule.
www.seudinheiro.com/2020/bolsa-dolar/17-fundos-de-acoes-que-bateram-o-ibovespa-de-forma-consistente-no-longo-prazo/
Thanks for the class!
Thank you so much. This information will change my life for the better. Thank you so very much. Thank you!
It's great to see your channel is gaining popularity as the content is top notch! Thank you!
Amazing that these are free, this one was particularly interesting as well. Thank you, for your hard work here 🙏
I even had a university lecturer (teaching statistics) who stated that flipping a coin results would influence the future results. I had to put them right!!
PalmPilots, ohhh, the nostalgia. Excellent discussions here... reinforces the fundamentals. 👏👏 Death and taxes....and psychological and social influence on human behavior regarding risk management. emotional investing/trading... human nature.
I found quite interesting that people would gamble their loses but not their wins. I'm risk adverse and when you presented the bet scenarios, I thought I rather just lose the 3,000 because I'll end up losing anyways, but then I thought but there's actually a chance I'd lose nothing instead of thinking there's a higher chance I'll lose more.
I feel tricked 😂
Great insight, I loved it!
you are so right. i had to do the mistakes you talk about to 're-wire' .much appreciated for these videos.
Agree absolutely with observation of goods becoming smaller over time . Look at the current size of Cadbury chocolate blocks and Big Macs.
Fantastic information and not a single wasted moment and love the Tyson quote
Hi Patrick
Another great session.
I really hope I can pick up information from these sessions and incorporate them in my portfolio management.
This was an amazing talk, thank you for making it!
People pay thousands of dollars for this information as part of an MBA. Many thanks professor Boyle
I like watching your videos i got interested in finance, ib, and stocks this year and see so many click bait channels selling get quick rich schemes and this channel actually teaches something. Shame you dont get a million views but unlike those other channels you were wealthy before youtube
Incredible work. Interesting to see how your channel has grown and changed over the last two years!
Great videos Patrick! I'm a bit surprised how many times you said "...but often people think..." and I turned out to be "people" :D I'm definitely a bit less of a fool after today. Thanks.
Professor you are just great. Please keep posting more lectures. Best regards
Thanks for all high quality lectures and information you provide!
Behavioural finance is essentially psychology in finance or economics. It manifests as the cognitive biases that are exploited daily by corporates and associated stakeholders in marketing goods and services, in particular to unsophisticated, retail consumers.
The behavior with the ticket to the World Cup seems very reasonable. If someone has put his effort into getting one, she would naturally want the other buyer to compensate her for it. I would expect sell price to be buyer's price plus the search cost for the item.
there are educators and teachers..you are both..thanks for these videos.
So glad to have found this channel! Been hooked on your content
This is a fantastic lecture. I came across this after listening to you ina an interview bitterly say nobody watches this despite it being gold.
I'm not a creator of content by any means however recommendation would be to turn these fallacies/ideas into there own episodes.
For some reason 15 10 minute episodes are far more palatable than 1 100 minute video.
The section on prospect theory tells you why!!!
I might break them up at some point. They were initially designed as full classes for students who could not attend live lectures due to covid and so are quite long.
Enjoy all your videos.
Great stuff - thank you.
Thank you for your amazing videos, Professor!
IMHO markets tend to efficiency, but "they can stay irrational longer than you can stay solvent". Just looking at recent history, it was not rational when Tesla was priced at more than 200 P/E, and it obviously fell 50% after. We may also try to find the rationality in all the FTX shitshow, but we could argue that markets were not efficient until the price went to 0. If markets were perfectly efficient, bubbles would not exist.
Loving the series. Thank you.
About people being nice to each other - I believe it is simply another transaction. All human interactions are transaction-based. Quid pro quo - consideration- something for something - translates into: I scratch your back if you'll scratch mine. Humans, by nature, are self-serving and utilise a series of self-serving tools -emphasizing reciprocity- to get what they need and want.
Great video... once again, thanks for your time, Patrick.
Such insightful and refreshing content Patrick.
The US Lottery relies a lot on the workings of behavioural finance. Lottery winners are given the choice of say USD 250 million today versus the perpetual distributions/earnings from the principal of say USD 800 million. Most people take the 250. ( Thus realising the heuristic of a bird in hand is worth 2 in the bush.)
Thank you for great content .
About the game where an amount of money is split between 2 people in line with rules set by 1 - I would make the rational decision as the recipient and accept whatever I was given. There would be 2 reasons: 1) To better my financial position (even if by only 1 penny); 2) To get the measure of the giver, to understand their personality (which may be useful strategically in the context of expected future interactions).
1:34:00 I believe this is the mother of all the quants secrets.. awesome sir..I am very happy that I found this channel which is helping me enormously to enhance my skills in finance
these are so much fun!!
This video is pure gold
1:26:55 About industry-pay-differentials.
Another explanation for it might be that people switching jobs (e.g. a secretary resigning and moving on to another company) imposes costs on the business itself.
Arguably, tendentially these costs would be higher in more profitable industries than in less profitable ones. (I'm not sure if profitability is the right standard to measure it by here.)
Also, there is of course the fact that often higher paying industries are located in a specific area, where living costs might be higher.
Your content is beyond amazing.
The answer to "where are all the billionaire's" is: social mobility allows just as much up as it does down. The US pre-1990's and even more so pre-1930's had the highest social mobility in the world. We made millionaires and destroyed millionaires at an almost 1:1 basis.
Great stuff! Mr.Hitman
drive.google.com/folderview?id=1YP_-yqhS3_exi6Kfo8Gq82qIyMlJy6_V
Just finished this class, ended up pausing it mid-way when the Capitol Riots began.
One issue of behavioral finance is that the we always seem to move seamlessly from game theory, in which there are indeed some more universal patterns, to purely economical (hence, social and historical) ones. Price stickyness, for instance, is treated in consideration of developed economies, and so is infaltion, both of which are really *very* different when you consider un-developed or "developing" economies.
One reason for price stickyness in developed economies is that inflation is often under control and price volatility, or the rate in which specific prices go up or down relative to the overall economy (after all, inflation is usually an averaged value), is much lower. So things do not move as erratically.
However in economies with historically high and uncontrolled inflation, which also tend to have a much less diversified business environment/workforce *and* high inequality (income, wealth and opportunity), price stickyness is much less present or, better yet, price volatility is much higher. Simply because the effect it'll have on one specific sector will have a much higher effect on the remanining ones: say meat goes up rather dramatically, prices in beverages fall dramatically or stagnate as people stop consuming them. Changes in wages also tend to be much more significant in order to account for (more or less) accumulated inflation.
In that sense, price stickyness may not be that much of a behavioral finance phenomenon as much as it is dependent on the quality of the economy, aside from the fact that it is good for business simply because following inflation in an environment where it is out of control incurs in lots of additional costs: just take Brazil in the 80's, where you'd have daily changes in prices defined by a fixed table; or Venezuela or Lebanon in recent years.
I'd argue is not as much a matter of behavior as much as it is a privilege of developed economies.
Great class as usual, Patrick! Cheers!
Very good points. There is a good argument that emerging economies bounce back from crises faster than developed economies, as there is less price stickiness and people are more flexible.
Great video, as always :) Thanks Mr. Boyle. At 43:25 I strongly disagree though. Even if you completely think in economic term, it is not profitable to rip people off. There is a saying in poker: "You can shear a sheep as much as you want, but you can only skin it once." I'd be very surprise that big corporation doesn't realize that taking the most money out of cognitive bias is economically detrimental in the long term.
In the example of Prospect Theory one could argue that 1M dollars is enough to change a man's life. So I guess for most people, 1% chance of getting nothing feels like an unnecessary risk. Regarding C/D dilemma the chance is that low that feels like a pure gamble to most people, so the way they think might be: 10%-->11% is "costing" 4M. So it makes sense for people to pick the option D after picking option A if it feels like a pure gamble to them (a gamble they don't expect to win anyway). I believe this is the same drive that draws people into lotteries etc.
GREAT STUFF
I have been in some amazing investments. In a recent investment, I was up nearly 7x but instead of taking profits, I invested more money and right afterwards the price crashed. Then I bought the dip and it crashed even more and I bought the dip again to dollar cost average. I went from being up to being down by a lot in no time. It's the greed/euphoria when you're up. You think that the price is going to keep going up and you want to make as much money as possible. When the price crashes, you see it as a buying opportunity and in some cases it works out. In other cases, you lose a lot of money.
I always heard the $9.99 thing was to prevent theft by forcing the cashier to make change thus recording the transaction in the register.
thanks for the video
Nice
We just went through the October effect.
If we take EMH to an extreme, I suppose there wouldn't be any counter-parties to financial transactions. After all, counter-parties take opposing positions because they have different views of the future, especially in derivatives markets. However the future has only one informationally efficient truth.
53:30 driver pride! :p
I think EMH is prescriptive rather than descriptive of securities markets. I mean if you follow the recipe perfectly you will create the perfect risotto. If not, you get sludge .
I worked for 3com when they bought Palm
When I left 3Com all my share options were valued 1/10th of the value that I was given
drive.google.com/folderview?id=1YP_-yqhS3_exi6Kfo8Gq82qIyMlJy6_V
Hey Patrick, Thank you very much for your interesting lectures. Where can I find the lecture slides for the next days?
Hi, if you are a QMUL student, they are available on QM Plus under the class ECOM Portfolio. If you are not I can just email them over to you. If there is enough demand, I might put them up on my website onfinance.org. At present, most of my views are from the university so I haven't made the slides publicly available.
@@PBoyle are they on the website now? I’m a finance student at St. Louis university in the US
53:30 yeah man! 😂
Personal approx. timestamps
12:30 intro
17:00 criticism on Behavioral finance
19:00 Heuristics
this was a great class I got a 10x in 86 turns on the coin flip game... can I be an investment banker now?
I disagree with prospect theory's narrative on stock investing. I believe the issue is less about holding on to losing shares in the baseless hope of improvement, and more about individual goals, time horizon, risk appetite and future company prospects (no pun intended). On the last, there is a possibility that an unprofitable company with say excess productive capacity, could be taken over by a competitor or another corporate further up the supply chain. If this were to occur, the share price would likely be driven up in the lead up to the takeover.
overconfidence bias led me to use all previous returns in 1DTE IC's until it went out of range and wiped out 26k of a 40k account. LOL
Great video! Is it possible to explain in deep details how we can use ISA account. There are so many small questions about ISA. Thanks in advance and best regards Patrick!
To what degree do you think algorithmic trading at large firms has impacted the efficiency of the markets, if any?
Kelly is $10 on a $25 bankroll with 2/1 payout and 60% of success, excluding the gain cap of $250. Honestly, everyone should know this or be close to this answer instinctually if you want to take risk for a hobby or a living. If you lost on the first roll, cut your bet size in half to $5. Rinse and repeat.
Such good content
drive.google.com/folderview?id=1YP_-yqhS3_exi6Kfo8Gq82qIyMlJy6_V
I'm on my 99th hamburger. I regret nothing!
One way to avoid momentum trading is to AVOID the daily news cycle. Another way is to get a degree in finance. 😊
How do you explain the fact that people tend to double up after losses, keep stocks that are going down but at the same time remove their money when the fund they invested in did poorly?
55:44 Regarding self-assessment. (and here particularly about interactions with others)
Maybe people tend to assess their potential capabilities rather than the statistical outcome of their interactions.
Besides, it's questionable to break this down into one skalar parameter.
I am reckless the more money I have ... I try to keep money out of my reach
Before 39:14: "Or are you avoiding change because you might be wrong" (paraphrasing)... How does this play into the tension between investment and speculation? What would would this re-examination look like, if the the conservatism is a response to uncertainty? (Is speculation more likely to play off in value invested sectors, e.g. renewable energy? Assuming maxamizing wealth is not the goal?)
drive.google.com/folderview?id=1YP_-yqhS3_exi6Kfo8Gq82qIyMlJy6_V
If everyone was rich, no one would be rich.
Concorde was more about national pride than economics.