Gyroscopic Investing

You probably have see this: http://www.efficientfrontier.com/ef/0adhoc/harry.htm
What does he want to say? I couldn't figure it out. the graphs looks interesting, however. Your take?

hedgehog wrote: You probably have see this: http://www.efficientfrontier.com/ef/0adhoc/harry.htm
What does he want to say? I couldn't figure it out. the graphs looks interesting, however. Your take?

I don't want to put words in Bill's mouth. But the basics of it is that the portfolio idea has worked, but being unconventional with tracking error it will be hard for many to follow when the stock market is going gangbusters. There will be a strong desire to abandon it when other approaches are doing much better in some years.

To which I tell him that most investors regardless of strategy do this anyway. So it's not unique to the Permanent Portfolio. We have met the enemy and it is us...

The above is why I think more investors should study behavioral finance and less time watching their portfolios constantly. When you understand how your brain interprets money decisions you can short-circuit the bad behaviors and become a better investor.

craigr wrote: The above is why I think more investors should study behavioral finance and less time watching their portfolios constantly. When you understand how your brain interprets money decisions you can short-circuit the bad behaviors and become a better investor.

Like the book - Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich by Jason Zweig - or do you have something better?

Aka, the "Oh how I hate to see no gain" thread...

hedgehog wrote:

craigr wrote: The above is why I think more investors should study behavioral finance and less time watching their portfolios constantly. When you understand how your brain interprets money decisions you can short-circuit the bad behaviors and become a better investor.

Like the book - Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich by Jason Zweig - or do you have something better?

Yes that would be a good book. Even just spending some time searching the web will show a lot of good papers and articles. A lot of what we think are good financial decisions are really just throwbacks to human evolution in terms of assessing risk, etc. Overconfidence, loss aversion, etc. are all hanging in our psyche ready to cause problems (and they do).

Humans are wired to do certain things and think in particular ways. If you at least know what your brain subconsciously is wanting to do, and you know in a particular situation it is not a good choice, then you can make a rational decision to ignore it.

But if you don't know why your brain is making  a particular decision, you have no way to know if it is or is not a good call.

Dieter wrote: Aka, the "Oh how I hate to see no gain" thread...

It's long one but in short can you tell how it is that all 4 of the PPs asset classes go down at the same time? I don't know but what's the correlation between them? when all 4 goes down what goes up?

craigr wrote: Yes that would be a good book. Even just spending some time searching the web will show a lot of good papers and articles. A lot of what we think are good financial decisions are really just throwbacks to human evolution in terms of assessing risk, etc. Overconfidence, loss aversion, etc. are all hanging in our psyche ready to cause problems (and they do).

Then perhaps you have more focused recommendations on the subject than a Google search? Something like an hour long lecture on YouTube or something in similar length would be nice. I tried to find a lecture by the author Jason Zweig but haven't found. Thanks.

Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases by Michael Pompian is said to be a more practical book than Zweig's. Any experience with it? Still, i would prefer some shorter essay or lecture on the topic to begin with. This does not sound that interesting a topic to dive that deep into. Though certainly useful.

hedgehog wrote: Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases by Michael Pompian is said to be a more practical book than Zweig's. Any experience with it? Still, i would prefer some shorter essay or lecture on the topic to begin with. This does not sound that interesting a topic to dive that deep into. Though certainly useful.

In my opinion, behavioral finance is one of the most important areas of investing to familiarize yourself with. The challenge is then to listen to and adopt the research findings.

hedgehog wrote: Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases by Michael Pompian is said to be a more practical book than Zweig's. Any experience with it? Still, i would prefer some shorter essay or lecture on the topic to begin with. This does not sound that interesting a topic to dive that deep into. Though certainly useful.

I don't know that book, but it sounds interesting.

Coming from the start-up world and raising venture capital has given me a much different perspective on issues like risk, overconfidence, loss aversion, confirmation biases, etc. than what I commonly see. I have been burned by all these behavioral issues to some degree and I try really hard to keep them in check as I've matured as an investor.

I use the Permanent Portfolio because based on my own life experiences, goals, and outlook on investing I find I am most comfortable with the diversification it offers. I say this knowing full well it is not perfect, it won't always have winning years, and may in fact have some surprises I hadn't considered. But compared to the alternatives I feel it offers the best balance of risks for me and my personality. So if that means I'm running against what the crowd thinks is popular at the moment, so be it. Most people are horrible investors so I don't care what they are bragging about in the market with their latest win. The odds are passive investors like me that don't tinker with things are going to beat them over time.

EDIT: I see many videos on YouTube on behavioral finance. I have not seen them, but some look like really good intros all the way to full blown college lectures.

By full blown course you mean the Yale one I guess. Maybe I don't need that much and at that level but I have found a one hour show on PBS NOVA - Mind Over Money -  http://video.pbs.org/video/1479100777/
Might be a good start. If you have a better idea in a one hour watching/reading time frame pls. post to this thread.

Didn't read yet just post it here: http://www.investorsinsight.com/blogs/j ... dicts.aspx

Thank you for the links hedgehog!!

Although Warren Buffett's sidekick Charlie Munger has made some pretty stupid comments in recent years, his writings on what he calls (I think) "mental latticeworks" is really fascinating and arises from the whole behavioral finance field, probably before it was even called behavioral finance.

As you read how Munger describes the way an investor can straighten out his thinking, it gives you a lot of insight into the mental configuration of great investors and speculators.  It's different than the way most people are wired.

Munger is a quite brilliant man.  I just think he is sort of old and grumpy now and doesn't care what anyone thinks about him.

MediumTex wrote: Although Warren Buffett's sidekick Charlie Munger has made some pretty stupid comments in recent years, his writings on what he calls (I think) "mental latticeworks" is really fascinating and arises from the whole behavioral finance field, probably before it was even called behavioral finance.

Could you post some links? As I was only able to find posts written on him. Not by him. I guess that would make a difference.

Just don't read that part of the book about the dope that invested a lot of cash in CMGI and road it all the way up (huge profit) and then almost all the way down. Oops...that was me.

For some reason jason was fascinated by my story. I for one, wanted to forget the whole thing. Oh well...at least it is in print and I will not be able to forget that investing mistake anytime soon.

hedgehog wrote:

craigr wrote: The above is why I think more investors should study behavioral finance and less time watching their portfolios constantly. When you understand how your brain interprets money decisions you can short-circuit the bad behaviors and become a better investor.

Like the book - Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich by Jason Zweig - or do you have something better?

I think William Bernstein wrote an interesting review for the new book in which he expressed a guarded acknowledgment that the PP works, coupled with serious doubts that many people will be able to stick with it over time. This earlier essay would seem to reflect the same line of thinking. For the record I think he is partly right. The PP really does require some major mental adjustments that a lot of people will not be able to handle.

hedgehog wrote:

MediumTex wrote: Although Warren Buffett's sidekick Charlie Munger has made some pretty stupid comments in recent years, his writings on what he calls (I think) "mental latticeworks" is really fascinating and arises from the whole behavioral finance field, probably before it was even called behavioral finance.

Could you post some links? As I was only able to find posts written on him. Not by him. I guess that would make a difference.

This one will keep you busy for a while:

http://law.indiana.edu/instruction/prof ... c/16_1.pdf

MediumTex wrote: This one will keep you busy for a while:

http://law.indiana.edu/instruction/prof ... c/16_1.pdf

The same thing in more easily read or audible format: arunbansal.com/charlie-munger/charlie-munger-psychology-human-misjudgment.htm

75 minutes, exactly.

Btw. can we know which book you posted the excerpt from?

Another one:

https://dimensional.adobeconnect.com/_a ... lications/

But hey, they want to sell us on something - so is it legit?

hedgehog wrote: Btw. can we know which book you posted the excerpt from?

I don't know where that came from.  It just popped up on a Google search.  I remember reading it a few years ago.