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What Investors Really Want Lessons from Behavioral Finance Meir - PDF document

What Investors Really Want Lessons from Behavioral Finance Meir Statman Glenn Klimek Professor of Finance Santa Clara University and Visiting Professor Tilburg University The Netherlands What Investors Really Want Utilitarian,


  1. What Investors Really Want Lessons from Behavioral Finance Meir Statman Glenn Klimek Professor of Finance Santa Clara University and Visiting Professor Tilburg University – The Netherlands What Investors Really Want Utilitarian, Expressive, and Emotional Benefits The difference between: 1. Giving a rose to a woman you court 2. Giving her $10, the price of a rose �

  2. What watch2buyers really want Why do I pay $10,000 for an IWC watch? Utilitarian benefits What does it do for me and my pocketbook? ����������������������������������� Expressive benefits What does it say about me (to me and to others)? ��������������������������������������� ������������������ Emotional benefits How does it make me feel? �������������������������� What Investors Really Want We want to stay true to our values Socially responsible investments Utilitarian benefits ��������������������� Expressive benefits ������������������������� Emotional benefits �������������������������������� ������������������������������ �

  3. What Investors Really Want We want high status and proper respect Hedge funds Fifty million, sadly, leaves one flying commercial. Hedge2fund money can put you into exhilarating conversations about the virtues of Gulfstreams versus Falcons Utilitarian benefits �������������������������������������� Expressive benefits ������������������ Emotional benefit ����������������������������������������� ���� What Investors Really Want We want great beauty and high status ����������������������������������������� �� ��������� ���!�����������"������ ������������������������������������ ���#$��������$�����"���$�%�������� !�������� ������� �

  4. What Investors Really Want We want to play and win Benefits to ‘active’ investors Utilitarian benefits ������������������������ Expressive benefits ������������������������������������������� ��������� Emotional benefits ���������������������������������� � What Investors Really Want Standard Finance and Behavioral Finance Standard Finance Behavioral Finance Finance with �������� Finance with ������ people in it people in it Sometimes normal2 ����� Computer2like people sometimes normal2 ������ �

  5. First Lesson Know Yourself Know Your Clients Know Your Competitors Know their wants Know their goals Know their cognitive errors Know their emotions What Investors Really Want Wants and cognitive errors What do we want? To get high returns To play the beat2the2market game and win To be socially responsible To gain high status �

  6. What Investors Really Want What Institutional Investors Really Want To get high alpha? To play the beat2the2market game and win? To be socially responsible? To gain high status? Second Lesson Know Science Teach science to your clients Teach the science of financial markets Teach the science of human behavior Knowledge and applications of science distinguish institutional investors from individual investors �

  7. Second Lesson Know Science and teach science The tools of science Science makes us aware of our cognitive errors and emotions Science gives us tools to correct them Logic and empirical evidence Second Lesson Know Science and teach science The tools of science “System 1” is the ����������������� system System 1 is automatic, effortless, rapid, and skilled (An American in the US, driving on the right) “System 2” is the ������������ ������ system System 2 is controlled, effortful, slow, and rule2 following (An American in the UK, driving on the left) Note: Not all effortful and slow systems apply the tools of science= �

  8. Know the science of human behavior and teach it Why is it hard to resist intuition, even when it is wrong? John Nash 2 A Beautiful Mind We were afraid= We are still afraid �

  9. Know science and teach science Emotions: Fear and Exuberance Do you think that now is a good time to invest in the financial markets? Percentage of investors who said Yes ������� ������� ������� ������� �� ������ ������ ������ ������ ��� ��� ���� ��� � ������� � ������ ������ ������ ������ ������ ������ ������ ���� ��� ��� ��� � � ������� ������ ������ ������ �� ��� ���� ��� ��� � � ������� ������ ������ ������ ����� ����� ����� ����� �� � ������ ������ ������ ������ ������ ������ ������ ������ Source: UBS Index of Investor Optimism Know science and teach science �

  10. Is Markowitz wrong? Did diversification fail? Question for participants Correlation between US Stocks and International Stocks � �������� �������� 0.90 In a typical year, what is the gap between the returns of US stocks and international stocks? More than 6 percentage points? 4 to 6 percentage points? 2 to 4 percentage points? Less than 2 percentage points? ��

  11. Know the science of financial markets and teach it Is Markowitz wrong? ��� ��� ����������� �������������� ����������� ����������� ��� ��� ��� ������������ ����������� ����������� ����������� � � � ��� ���������������� ���������������� ���������������� ���������������� ���������������� ���������������� ���������������� ���������������� ��� �� ����������� ����������� ����������� ������������� �� �� �� ����������� ����������� ����������� ������������ � � � ��� ����� ���������������� ���������������� ���������������� ���������������� ���������������� ���������������� ���������������� ���������������� ���� ���� ���� ���� ���� ���� ���� Know the science of financial markets and teach it ������ ��!����������� ������ ��!����������� ������ ��!����������� ������ ��!����������� "���#���$�"�%��!�&����' "���#���$�"�%��!�&����' "���#���$�"�%��!�&����' "���#���$�"�%��!�&����' ��

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