Wednesday, October 10, 2012

Big Picture Conference Update: O'Shaughnessy and Ritholtz

Jim O'Shaughnessy: We arbitrage human nature. The deadly enemies of stock trading: Fear greed, hope and ignorance. Fear, greed and hope have wiped out more money than any recession or depression.

The cure to human nature's tendency to produce terrible trade decisions: 1. A good strategy, and 2. Discipline (willpower). Discipline is the hard part.

Barry Ritholtz presents: This is your Brain on Stocks (Agora presentation)

Dunning and Krueger: The higher your expertise in a certain area, the more you are aware of where you are falling short. Pros know what they are doing wrong and where they need some help. Everyone else vastly overestimates their ability. This has devastating results in investing.

Ritholtz references Bennett Goodspeed's The Tao Jones:

  • The more confident an expert sounds, the more likely he is to be believed by TV viewers.
  • Experts who acknowledge that the future is inherently unknowable are unlikely to be believed.
  • The more self-confident an expert appears, the worse their track record is likely to be.
  • Forecasters who get a single big outlier correct are more likely to underperform the rest of the time.

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