Behavioral Finance

258 Posts

Solutions to a Misbehaving Finance Industry

Solutions to a Misbehaving Finance Industry

Excessive financialization sucks in talented young graduates from more useful occupations, invents superfluously complex financial products, misdirects investment capital into bubbles, and if unchecked by effective regulation, encourages many evils. So, is this evidence of a finance sector malfunctioning so badly that it will inevitably lead to capitalism’s demise? Read more

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Book Review: Keynes’s Way to Wealth

Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist

In this examination of the life and investment strategies of John Maynard Keynes, the author argues that the great economist and risk-taking investor believed that it is best to put your investing on autopilot with a sound plan that meets your goals — revisiting it once a year — and then go out and live your life. Read more

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Weekend Reads for Investors: Montier, Musk, and Mauboussin

Weekend Reads for Investors: Montier, Musk, and Mauboussin

Central bankers in the US have long fixated on the equilibrium real interest rate (ERIR) as their lodestar, an obsession that GMO’s James Montier, in The Idolatry of Interest Rates, bemoans as “a massive exercise in navel gazing.” According to Montier, the broad acceptance of the theoretically dubious ERIR — the real interest rate consistent with full employment of labor and capital resources—is not an example of the wisdom of crowds, but rather “groupthink extraordinaire.” Further, investors’ collective preoccupation with interest rates as an economic “cure-all” and their “deification of central bankers” are equally misguided, says Montier. Read more

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