Behavioural economics seems like a very fashionable explanation for market behaviour. However, it doesn't seem falsifiable. Just because some factor seems to work, it doesn't have to be because of herd effects. In fact it's never explained exactly which of the many BE effects is at play, or how to know which ones are not active at a given time. I've never seen anyone predict that now, loss aversion is excessive, therefore the market is going to go up or down or whatever. It seems to always be "we found this violation of EMH" -> behavioural econ is true.
Regarding the things mentioned in the article, none of them are new. That doesn't mean that anyone can make money doing them. I like to do restaurant analogies when it comes to hedge funds, maybe because I grew up in one and went on to manage a couple of funds, but also there's certain similarities.
Everyone thinks they can cook. It's just taking the same ingredients that are publicly available and putting them through some process, right? Well unsurprisingly it is indeed possible to make a meal that is better than what you can buy at a restaurant. Can you do it cheaper and with less effort? Not likely. On the investment side though, it really matters a lot whether you can execute cheaply. And you can get lucky with the right combination on either side of this analogy.
Another analogy is recipes. How many restaurants owe their success to having better recipes than everyone else? I struggle to think of any. A restaurant is not merely a collection of recipes. You can stick exactly the same instructions in front of two different teams and the experience will turn out differently. The same goes for these strategies. Plenty of funds do trend following, yet somehow they do not end up with the same returns.
And finally, a recipe is merely a guide. Look in any cookbook, there are loads of questions left over after you read a recipe. Do I peal the potatoes? How long do I cook things? At what temperature? And so on. These strategies are just like that. So, 12-1 momentum. How much of each future? Is there an execution strategy? What you end up doing depends a lot on what exactly the environment is, who your staff are, etc.
>I like to do restaurant analogies when it comes to hedge funds, maybe because I grew up in one and went on to manage a couple of funds, but also there's certain similarities.
This may be one of the best explanations I have seen.
Very simple and easy to understand. Bravo!
Yes, trying to get my long term investment plan done. I'm allocating a small % (few thousands a month) to riskier things. I'm betting on few cryptocurrencies now, but wouldn't mind to explore your advices :)
Also debating with myself I should do my investment via my personal account or via an offshore company.
Behavioural economics seems like a very fashionable explanation for market behaviour. However, it doesn't seem falsifiable. Just because some factor seems to work, it doesn't have to be because of herd effects. In fact it's never explained exactly which of the many BE effects is at play, or how to know which ones are not active at a given time. I've never seen anyone predict that now, loss aversion is excessive, therefore the market is going to go up or down or whatever. It seems to always be "we found this violation of EMH" -> behavioural econ is true.
Regarding the things mentioned in the article, none of them are new. That doesn't mean that anyone can make money doing them. I like to do restaurant analogies when it comes to hedge funds, maybe because I grew up in one and went on to manage a couple of funds, but also there's certain similarities.
Everyone thinks they can cook. It's just taking the same ingredients that are publicly available and putting them through some process, right? Well unsurprisingly it is indeed possible to make a meal that is better than what you can buy at a restaurant. Can you do it cheaper and with less effort? Not likely. On the investment side though, it really matters a lot whether you can execute cheaply. And you can get lucky with the right combination on either side of this analogy.
Another analogy is recipes. How many restaurants owe their success to having better recipes than everyone else? I struggle to think of any. A restaurant is not merely a collection of recipes. You can stick exactly the same instructions in front of two different teams and the experience will turn out differently. The same goes for these strategies. Plenty of funds do trend following, yet somehow they do not end up with the same returns.
And finally, a recipe is merely a guide. Look in any cookbook, there are loads of questions left over after you read a recipe. Do I peal the potatoes? How long do I cook things? At what temperature? And so on. These strategies are just like that. So, 12-1 momentum. How much of each future? Is there an execution strategy? What you end up doing depends a lot on what exactly the environment is, who your staff are, etc.