Archives for September 2016

Jason Zweig shows what happens in your brain when you think about money and tells investors how to take practical, simple steps to avoid common mistakes and become more successful.

Jason Zweig is an investment journalist and a long time investing columnist for Wall Street Journal. He is best known for editing and adding commentary to the revised edition of Benjamin Graham’s investment classic The Intelligent Investor. Graham’s book, considered as investing bible by many, was first published in 1949 and stays on top of every value investor’s reading list. In his commentary, Zweig has made Graham’s principles easier to understand and implement.

Your Money and Your Brain is Zweig’s attempt to demystify the subject of behavioural economics. The hypothesis that our emotions interfere with our rational thinking isn’t a hypothesis anymore. Zweig writes –

… over the past few years, scientists have made stunning discoveries about the ways the human brain evaluates rewards, sizes up risks, and calculates probabilities. With the wonders of imaging technology, we can now observe the precise neural circuitry that switches on and off in your brain when you invest.

[Read more…] about BookWorm: Your Money and Your Brain

Human brain is a pattern seeking machine. When we see something that looks like order we usually attribute it to human intelligence and skill. Hot hand fallacy is a proof of how easily we get fooled by randomness.

One of the most embarrassing moments in my childhood days was when my class teacher asked me something about Sachin Tendulkar. I replied, “Who is Sachin Tendulkar?” It was 1992 and I was in 6th standard. The whole class, including the teacher, burst into laughter. That was the day when I started taking active interest in cricket. Of course the motivation was to avoid looking like a fool in a cricket crazy nation.

“Dravid is not in form these days,” claimed one of my friends.

“I hope he comes back in form soon else he will be dropped from the national team,” argued another friend.

I nodded in agreement. I was faking. Because one thing that still baffled me was the idea of a player being “in-form” or “out-of-form.”

“What’s this in-form and out-of-form business?” I asked my best friend. He was the only who I didn’t feel the need to impress with my cricket knowledge.

“Well, if a player plays consistently well for many innings, he’s said to be in good form. Otherwise he’s considered as out of form,” he explained. “An in-form player is always in demand because he’s expected to continue playing well.”

Why does an in-form player play well? The form was based on his past performance so how does that ensure his future performance? Isn’t this form business based on a circular logic?

These were some intelligent questions that I should have asked from my best friend but I wasn’t really very inquisitive as a child so I left it that.
[Read more…] about Behaviouronomics: Hot Hand Fallacy