Behavioral Finance Quotes

The concept of loss aversion is certainly the most significant contribution of psychology to behavioral economics.

Investing requires qualities of temperament way more than it requires qualities of intellect.

The most important quality for an investor is temperament, not intellect.

A lot of people with high IQs are terrible investors because they've got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success

I believe, in the stock market - that's one of my fields - that most people are irrational. And to be irrational, you can be irrational in so many different ways that, practically, the result is indeterminate.

I would reject the distinction between a Keynesian moment and a behavioral moment.

Market prices are always wrong.

One thing on psychology, which we've always known, is that every investor says they're long-term - and they are until the market takes a hit.

The market is incredibly inefficient and capable on rare occasions of being utterly dysfunctional. And people have a really hard time getting their brain around that fact. They want to believe that it's approximately efficient almost all the time, and it simply isn't true.

It's human nature: for most investors, the pain of stocks going down is more tangible than the joy of when they go up. The common impulse is to do something - anything - to minimise the pain.

What's so seductive about the efficient markets hypothesis is that it applies nine years out of ten. A lot of the time it works. But when it stops working, you blow up.

The possibility that stock value in aggregate can become irrationally high is contrary to the hard-form "efficient market" theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by "rational man" models of human behavior from economics and too little by "foolish man" models from psychology and real-world experience.

I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, "My God, they're purple and green. Do fish really take these lures?" And he said, "Mister, I don't sell to fish." Investment managers are in the position of that fishing tackle salesman.

The generally accepted view is that markets are always right -- that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite view. I believe the market prices are always wrong in the sense that they present a biased view of the future.

Markets do very weird things because it reacts to how people behave, and sometimes people are a little screwy.

I started in business journalism from the outside, so when I started writing about markets and business, I was struck by the fact that markets seemed to work well even though people are often irrational, lack good information and are not perfect in the way they think about decisions.

History demonstrates that participants in financial markets are susceptible to waves of optimism. Excessive optimism shows the seeds of its own reversal in the form of imbalances that tend to grow over time.

To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.

Regardless of what happens in the markets, stick to your investment program. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor.

When people discover they are no good at baseball or hockey, they put away their bats and their skates and they take up amateur golf or stamp collecting or gardening. But when people discover they are no good at picking stocks, they are likely to continue to do it anyway.

An investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.

I don't gamble, because winning a hundred dollars doesn't give me great pleasure. But losing a hundred dollars pisses me off.

The investment business has taught me – increasingly as the years have passed – that people, especially investors (and, I believe, Americans), prefer good news and wishful thinking to bad news; and that there are always vested interests to offer facile, optimistic alternatives to the bad news.

I don't entirely reject the idea of efficient markets. It needs updating.