The Behavioral Investor
By Wilfred Waters
The podcast therefore has two themes, mathematics and human behaviour. Together, behavioural investing. We take a first principles approach by summarising scientific studies and interviewing psychology and mathematics researchers. This will show us the first principles. We will then reason from these first principles to the best strategy to cause optimal human investing behaviour.
The Behavioral InvestorJul 18, 2022
S3E7 🤯 Žiga Vižintin on Why Retirement Investing is Irrational
S3 E6 🍄 The Science, Taboo and Business of Psychedelics with Tara Austin and Josh Hardman
S3E5: 🎌 Value Investing in Japan
Last episode Nick Mishkin (https://behafin.substack.com/p/s3e4-being-intelligent-about-emotions) mentioned Keith Chen’s futured languages research. Here he mentioned Japanese is not a futured language, which leads us to this episode where we spoke with @CacheThatCheque (https://twitter.com/CacheThatCheque), a value investor in Japan!
CTC mentioned a few resources to help foreigners get to know the Japanese market, such as the Buffett Code screener (https://www.buffett-code.com/), which is easy to use in conjunction with Google Translate. He recommended searching for blogs in Japanese for deep dives on businesses brought up by the screener. Examples of such blogs are:
- https://tsubame104.com/archives/category/%e9%8a%98%e6%9f%84%e5%88%86%e6%9e%90
- https://net-net-value.com/totalranking/
- https://tsubame104.com/archives/5126
- https://toushi-matomeblog.com/
- https://tsubame104.com/
CTC's Twitter has his portfolio pinned. During the interview we discussed Eiwa (https://www.eiwa-net.co.jp/english/).
As such, CTC gave us a great overview of the Japanese market and some useful tools to find one’s way around it as an outsider.
Perhaps the most important thing, however, was the discussion at the beginning on how Japan isn’t the dull place it has long been thought to be. It has grown at the same rate as Western markets in the past ten years, for example. With half the market available for purchase net of cash, much opportunity awaits for activist investors.
As an aside, here is a very popular recent ergodicity tweet.
WHAT WE DOWe solve the mathematical problem of causing an enormous increase in one's bank account balance through human effort. The podcast therefore has two themes, mathematics and human behaviour. Together, behavioural investing. We take a first principles approach by summarising scientific studies and interviewing psychology and mathematics researchers. This will show us the first principles. We will then reason from these first principles to the best strategy to cause optimal human investing behaviour.
WHERE WE ARES3E4 🤗 Being Intelligent about Emotions with Nick Mishkin
Nick is doing an MA in behavioral economics at IDC Herzliya (https://www.idc.ac.il/en/schools/rris/pages/behavioral-economics.aspx). We reached out to him for an interview because he curates the Behavioural Economics podcast playlist (https://open.spotify.com/playlist/2qVC324gaGLfO9HVoSddNv?si=hg8DUYx0QKGnEliXZ_nYiQ&nd=1). As it happens, he’s also been interviewed on Merle’s blog (https://www.moneyonthemind.org/post/interview-with-nick-mishkin), whom we interviewed recently ourselves! Yes, we’ve reached that stage of penetrating the behavioral finance landscape. Have a read of the reference list below for the topics he covered in this interview. The most useful point for our mission to understand why no one executes on Ben's Billion Dollar Compounding Plan is futured language, the first study below by Keith Chen.
Chen, M. K. (2013). The effect of language on economic behavior: Evidence from savings rates, health behaviors, and retirement assets. American Economic Review, 103(2), 690-731. Accessed 24/7/21: https://www.jstor.org/stable/pdf/23469680.pdf.
Crosby, D. (2018). The Behavioral Investor. Harriman House. Accessed 24/7/21: https://www.amazon.co.uk/Behavioral-Investor-Daniel-Crosby/dp/0857196863.
Danziger, S., Levav, J., & Avnaim-Pesso, L. (2011). Extraneous factors in judicial decisions. Proceedings of the National Academy of Sciences, 108(17), 6889-6892. Accessed 24/7/21: https://www.pnas.org/content/pnas/108/17/6889.full.pdf?nr_email_referer=1%29%2C.
Levav, J., & Argo, J. J. (2010). Physical contact and financial risk taking. Psychological Science, 21(6). Accessed 24/7/21: https://journals.sagepub.com/doi/abs/10.1177/0956797610369493.
Levav, J., & McGraw, A. P. (2009). Emotional accounting: How feelings about money influence consumer choice. Journal of Marketing Research, 46(1), 66-80. Accessed 24/7/21: https://journals.sagepub.com/doi/pdf/10.1509/jmkr.46.1.66.
Matsumoto, D., & Willingham, B. (2006). The thrill of victory and the agony of defeat: spontaneous expressions of medal winners of the 2004 Athens Olympic Games. Journal of personality and social psychology, 91(3), 568. Accessed 24/7/21: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.491.414&rep=rep1&type=pdf.
Simonsohn, U. (2007). Clouds make nerds look good: Field evidence of the impact of incidental factors on decision making. Journal of Behavioral Decision Making, 20(2), 143-152. Accessed 24/7/21: https://onlinelibrary.wiley.com/doi/pdf/10.1002/bdm.545.
Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12(3), 183-206. Accessed 24/7/21: https://onlinelibrary.wiley.com/doi/abs/10.1002/%28SICI%291099-0771%28199909%2912%3A3%3C183%3A%3AAID-BDM318%3E3.0.CO%3B2-F.
S3E3 🏦 Snoop: Open Banking and Behavioral Finance
S3E2 ✔️ Merle van den Akker: Compounding Investments, Alone, Won’t Fix Poverty.
In this interview we discussed her research on contactless payments and other technology-based means of removing friction and a sense of loss from the paying process. This is a fundamental issue for those practicing personal financial self care, who wish to maximize the proportion of their income that is invested rather than lost during unnoticeable spending events.
The interview also covered research on poverty and the feeing of time as someone struggling to survive. We discovered that hyperbolic discounting rates modulate depending on one’s level of financial distress. A key study she cited is On the Psychology of Poverty (https://science.sciencemag.org/content/344/6186/862). This lead us to a discussion of structures in society that stop people lifting themselves out of poverty, a key challenge to our assumption that the compounding sheet discussed throughout this series shall be sufficient to take care of people’s financial prosperity.
Similar to our S1E9 interview with Leigh Caldwell, she pointed out that business ventures are a major differentiating factor in finding financial success. It appears then that not only good financial compounding behavior but also starting a business shall need to be a focus of this podcast going forward, to answer the question why almost no one is seriously on a path to accumulating a billion dollars within 3 generations.
Finally, as a PhD candidate, Merle was an excellent source of information on conferences:
eshop.qmul.ac.uk/conferences-and-events/conferences-events/conferences-events/behavioural-finance-working-group-2021
www.rbfc.eu/
waset.org/behavioral-finance-and-markets-conference-in-october-2021-in-paris
conferenceindex.org/conferences/behavioral-economics
www.aobf.org/
www.behavioraleconomics.com/event/boulder-summer-conference-on-consumer-financial-decision-making/
www.consumerfinance.gov/data-research/cfpb-research-conference/2021-cfpb-research-conference/
warwick.ac.uk/fac/soc/wbs/subjects/bsci/events/spudm_2021/
www.ukfinance.org.uk/events
cepr.org/content/cepr-network-household-finance
S3E1 🔥 Behavioral Design in Fintech with Francesca Johnston
Francesca Johnston (https://twitter.com/FrancescaChess) is a behavioral science master’s student at the London School of Economics. We talked applications of behavioral design to fintech.
The premise of latest book by Dr Grace Lawden from LSE was hyperbolic discounting: https://www.amazon.co.uk/Think-Big-Small-Steps-Future/dp/0241420164/ref=sr_1_1?dchild=1&keywords=grace+lordan&qid=1622051681&s=books&sr=1-1. This author states that the most effective behavior change means is medium term, not long term: 5 years.
Fintech BD exmples:
Episodic future thinking by NatWest: contrasting yesterday, today and tomorrow’s versions of the self: https://www.moreaboutadvertising.com/2021/03/natwest-strikes-an-optimistic-note-with-thepartnerships-new-tomorrow-begins-today-line/. Aged images of your future self helps to reduce the effect of delayed/hyperbolic discounting: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3949005/.
Monzo: Designing good mental health into the way we bank: https://www.designcouncil.org.uk/news-opinion/monzo-designing-good-mental-health-way-we-bank.
Plum: an app for your financial health and wellbeing: https://withplum.com/.
Effects:
Prospect theory is composed of loss aversion, anchoring and the probability effect: https://en.wikipedia.org/wiki/Prospect_theory. It is about how humans make decisions where there is a degree of uncertainty, such as investing.
Memories are built based on our biases, they can be distorted by: duration, neglect, forecasting bias, spotlight effect (https://thedecisionlab.com/biases/spotlight-effect/).
Peak-end effect: https://en.wikipedia.org/wiki/Peak%E2%80%93end_rule.
Loss aversion: https://en.wikipedia.org/wiki/Loss_aversion.
Anchoring: https://en.wikipedia.org/wiki/Anchoring_(cognitive_bias).
Losses are felt twice as much as equivalent gains: https://milfordasset.com/insights/investors-feel-losses-twice-much-gains.
Lunch effect: judges just before lunch sentence more people: https://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html.
S2E10 👺 Behavioral Design with David Fanner
David’s behavioral science heroes are Rory Sutherland (https://www.amazon.com/Alchemy-Curious-Science-Creating-Business/dp/006238841X) and Nicholas Christakis (https://en.m.wikipedia.org/wiki/Nicholas_Christakis).
Here are some notes on the first principles he mentioned.
Get who to: Use a “Get who to” analysis. As a first step, “Get 18-34 year olds to start investing”. As a second step, look at retention: “Retain family members in the behavior continuing the dynasty.” You can also do a COMB analysis (capability, opportunity, motivation = behavior).
-Capability: physical, mental (knowledge about how to invest).
-Opportunity: physical and social. Design of the lift vs the stairs. If stairs are further than the lift then the physical opportunity favours the lift. Social: do you or the office identify as stair users, are you a weirdo for using stairs? There can be a social barrier or bitter divide between groups.
-Motivation: reflective, automatic (95% of decisions are automatic). Priming relates to automatic.
Put incentives in the present: A participant in a prior Nudgestock (https://www.nudgestock.co.uk/) stated that putting the incentives in the present is key. A pint at the end of the month is less motivating than something nice now. With Ben’s Billion Dollar Plan we have the opposite, a payoff 3 generations later.
Humans have multiple time perspectives: Zimbardo - time perspective inventory, there are more than a handful of time perspectives that we shift in and out of throughout the day, here’s a speech by Zimbardo youtu.be/0YuzfwZlTJ0.
Naming: name it after yourself or something meaningful. ‘Ben’s Billion Dollar Plan’. As it’s named after you, you can claim credit in the now. The concept of designated driver, spread through soaps, made it ok for one person in a group not to drink for the good of others. Name the investor similarly.
Make the desired behavior a default: Prefilled boxes. Tap and go. Remove the potential to fiddle. Add friction to undesired behavior.
Goal gradient effect: As we approach a goal we put more effort toward it. Make mini milestones, thousands of them.
Design the environment: How does everything in your life point to this behavior?
Fresh start effect: People are much more likely to start new behaviors at temporal landmarks.
Streaks: you’ve been doing this for x days in a row. Backfire effects, you need a forgiving streak.
Variable rewards: variable rewards elicit a far more enthusiastic, effortful response compared to constant rewards.
Badges: fitness apps often use badges, as do computer games and some investing communities such as www.strawman.com.
Accountability buddies: if you have a buddy to hold you to account, they can keep you on course.
Private clubs: Invite only clubs are far more interesting. Acquisitions are more likely to be the ones who will be good for the service as they’ll be nominated by people already in the club. Members also get to subtly signal to the in group that they’re part of the same thing.
S2E9 🧗 From 100,000 to 1,000,000
We interviewed Yegor, author of From 100k to 1M (https://from100kto1m.substack.com/
). You can also find him on Twitter and Instagram using the handle @from100kto1m (https://twitter.com/from100kto1m/
, https://www.instagram.com/from100kto1m
).
Yegor is a value investor aiming to make 1,000,000 from 100,000 within 5-10 years and maintains a record of this on Substack. He uses this as motivation but also for evidence of his achievements if he decides to become a fund manager.
He has met and was educated as a value investor by Phil Town. He is something of a legend: https://www.ruleoneinvesting.com/
.
Finally, shoutout to Fintwit Summit organisors where we met Yegor, showing that the summit lead to great connections and further content for #FINTWIT
. Onwards.
WHAT WE DO
We solve the mathematical problem of causing an enormous increase in one's bank account balance through human effort. The podcast therefore has two themes, mathematics and human behaviour. Together, behavioural investing. We take a first principles approach by summarising scientific studies and interviewing psychology and mathematics researchers. This will show us the first principles. We will then reason from these first principles to the best strategy to cause optimal human investing behaviour.
WHERE WE ARE
Substack: https://behafin.substack.com/
Twitter: https://twitter.com/behafin
Podcast: https://podcasts.google.com/feed/aHR0cHM6Ly9hbmNob3IuZm0vcy8yN2I1YzZhYy9wb2RjYXN0L3Jzcw?sa=X&ved=0CA
S2E8 💲 Grit Perpetuates Wealth: Jagdeep Mavi
In this second part of our interview with Jag, he turned the tables and interviewed us. Here he showed his wealth of experience in finance by prodding us to find something deeper than merely aspirational purchases like Lamborghinis. He warned us that inspiration is more durable as a motivator. Have a listen for the path he directed us down with his line of questioning.
As always, here are some links to topics discussed during the session so you don't have to Google them yourselves:
- Family Fortunes: How to Build Family Wealth and Hold on to It for 100 Years - https://www.amazon.com/Family-Fortunes-Build-Wealth-Years/dp/1118171411
- Is it True that 40% of Americans Can’t Handle a $400 Emergency Expense? - https://www.cato.org/blog/it-true-40-americans-cant-handle-400-emergency-expense-0
- Canadians and their Money: Key Findings from the 2019 Canadian Financial Capability Survey - https://www.canada.ca/en/financial-consumer-agency/programs/research/canadian-financial-capability-survey-2019.html
- Square Kilometre Array - https://www.skatelescope.org/
- Earliest Record of Accounting - https://fremont.edu/history-of-accounting/
- France CAC 40 Stock Market Index - https://tradingeconomics.com/france/stock-market
- Black Walnut Trees, grow black walnut wood for profit - https://treeplantation.com/black-walnut.html
- How Beeple Crashed the Art World - https://www.newyorker.com/tech/annals-of-technology/how-beeple-crashed-the-art-world
- Stashing Your Art in a Tax Haven Can Be Dicey - https://www.barrons.com/articles/stashing-your-art-in-a-tax-haven-can-be-dicey-1445663281
- Behind Closed Doors: A Look At Freeports - https://itsartlaw.org/2020/11/03/behind-closed-doors-a-look-at-freeports/
- The Compound - https://docs.google.com/spreadsheets/d/1k0IDctrpzyLjFFjYqTiPXZuSTwYFJdK-QZQ3AG859Dw/edit#gid=485472545
- The Average Canadian Salary in 2020 - https://www.jobillico.com/blog/en/the-average-canadian-salary-in-2020/
- Personal Income in Australia - https://www.abs.gov.au/statistics/labour/earnings-and-work-hours/personal-income-australia/latest-release
- The Selfish Gene - https://en.wikipedia.org/wiki/The_Selfish_Gene
- Memes - https://en.wikipedia.org/wiki/Meme#Dawkins
- Positive Psychology and Familial Factors as Predictors of Latina/o Students’ Psychological Grit - https://journals.sagepub.com/doi/abs/10.1177/0739986315588917
S2E7 💸 13 Uncorrelated Assets: Jagdeep Mavi
DISCLAIMER:
This is not financial advice. We are not financial advisors.
AD:
One way to manage behavior when investing is to use http://passiv.com/behave. This can be used to rebalance your portfolio, with one click, in accordance with allocation rules you have set.
INTERVIEWEE: JAGDEEP MAVI
Jagdeep Mavi (https://twitter.com/jagmavi) has a hedge fund and ETF sales background. His focus is on maintaining a portfolio of uncorrelated assets to minimize turbulence. His extensive experience gives us great insight about managing behavior as well. This is the first part, in part 2 he turns the tables and interviews us, so keep an ear out for the next episode.
Links to some of the topics discussed:
- The Lost Decade (https://www.pattonfunds.com/remembering-a-lost-decade.html)
- ETFs (https://www.investopedia.com/terms/e/etf.asp)
- Non recourse finance (https://www.investopedia.com/terms/n/non-recoursefinance.asp)
- Non recourse leverage (https://www.investment-and-finance.net/finance/n/non-recourse-leverage.html)
- Out of the money call options (https://www.investopedia.com/terms/o/outofthemoney.asp)
- Wallstreetbets (https://www.reddit.com/r/wallstreetbets/)
- Volatility and tail risk investing (https://thehedgefundjournal.com/volatility-and-tail-risk-investing/)
- Tail risk hedging (https://verdadcap.com/archive/tail-risk-hedging)
- Mutiny Fund (https://mutinyfund.com/)
- World Tree: Impact Investing for Everyone – Future for Farmers (https://www.worldtree.eco/)
S2E6 🐢 What 25% Geometric Return Sounds Like: Alistair Cowley
Alistair Cowley is a value investor who runs a website: growthwithvalue.com and podcast by the same name (https://podcasts.google.com/feed/aHR0cHM6Ly9hbmNob3IuZm0vcy8xZjJjYzQ5MC9wb2RjYXN0L3Jzcw?sa=X&ved=0CAMQ4aUDahcKEwjwy9yy_azvAhUAAAAAHQAAAAAQAg&hl=en-QA). His heroes include Warren Buffett and Tony Hansen (https://www.youtube.com/watch?v=FD7dF2QrnTw), particularly with regard to having skin in the game and only taking a performance fee. As an aspiring fund manager, Alistair has written an owner's manual for his portfolio (https://growthwithvalue.com/wp-content/uploads/2020/11/Owners-Manual-1.pdf).
An example of his analysis skills is this report on Flight Centre: https://growthwithvalue.com/wp-content/uploads/2020/12/Flight-Centre-Company-Analysis.pdf. As shown in this report, he uses a checklist. This has been distilled from a number of books by expert investors, such as found in:
- The book Financial Shenanigans (https://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071703071), and the
- Credit Suisse whitepaper Measuring the Moat (https://research-doc.credit-suisse.com/docView?language=ENG&format=PDF&sourceid=em&document_id=1066439791&serialid=RojFyPPuyB52GjdsfOiNhlbEB2L63HISLZqSTpL1p48%3d)*
- And Tao of Charlie Munger (https://www.amazon.com/Tao-Charlie-Munger-Compilation-Commentary/dp/150115334X) In one of our standard final questions he mentioned the mental handwashing equivalent of ignoring market volatility.
This is a point emphasised by the great Australian investment advisor Peter Thornhill: https://www.youtube.com/channel/UCwH2W3eN7WoWWTC7KiUVR6A/videos. Some useful episodes from the Growth With Value Podcast are:
- Filtering the market: https://podcasts.google.com/feed/aHR0cHM6Ly9hbmNob3IuZm0vcy8xZjJjYzQ5MC9wb2RjYXN0L3Jzcw/episode/ZTQwM2JkMGQtN2VmNy00MDQ5LTg1YjgtN2JjNDIyODQ0OWY4?sa=X&ved=0CAUQkfYCahcKEwjwy9yy_azvAhUAAAAAHQAAAAAQAw&hl=en-QA
- Discount Cashflow Analysis: https://podcasts.google.com/feed/aHR0cHM6Ly9hbmNob3IuZm0vcy8xZjJjYzQ5MC9wb2RjYXN0L3Jzcw/episode/NTk5MjE4N2QtMzI2NS00OWQxLWIyNjgtM2JlYzQ5YjlkN2E1?sa=X&ved=0CAUQkfYCahcKEwjwy9yy_azvAhUAAAAAHQAAAAAQAw&hl=en-QA
Alistair's watchlist can be found here: https://growthwithvalue.com/watchlist/. It is a good place to start to see which businesses he likes based on his framework.
*Mauboussin is a great resource: https://themokaya.com/2020/12/28/michael-mauboussin-resources/
S2E5 ➕ Dr. Joy Lere Talks about Freud ➕ Finance
Dr. Lere was introduced to us via Twitter by none other than Dr. Daniel Crosby, author of The Behavioral Investor. She can be reached on Twitter and Instagram with the same handle, @joylerepsyd. She's also on LinkedIn and Substack, with the wonderful newsletter name of Freud + Finance.
S2E4 😎 Behavioral Investing from Peru and a Quick Tour of the Lima Stock Exchange
A note to our listeners: Wil interrupted Sebastian too much in this episode. He will improve in this regard in future interviews, sorry about this - we're both total newbies to podcasting! This is in strong contrast to today's guest who has been a TV anchor!
https://t.co/YNRm7o9zMB?amp=1,
...is an economist and investment analyst at Coril Group in Peru (https://www.grupocoril.com/about.html). He has also been a news anchor for Canal Channel N:
https://www.youtube.com/watch?v=L7JCyKMuHOw&feature=youtu.be.
Join us as he takes us on a tour of investing in Peru, with commentary on everything from software patent company Network 1 Technologies:
...to news companies like Empresa Editora El Comercio SA:
https://www.marketwatch.com/investing/stock/elcomei1?countrycode=pe
...to food companies like Alicorp:
https://www.alicorp.com.pe/pe/es/
...and also a large bank, Credicorp:
https://credicorp.gcs-web.com/investor-overview
All of these are traded on the Lima Stock Exchange (https://www.bvl.com.pe/). Sebastian also covers behavioral investing advice, The Investment Checklist (https://amzn.to/3puzMpc), and the challenges managing client behavior from the perspective of a broker.
The episode also contains some commentary on the Advanced Value Investing Workshop (http://www.advancedvalueinvestingworkshop.com) run by Professor Kenneth Jeffrey Marshall, which we discovered we are both currently participating in!
S2E3 ☠️ Breaking The Market to Mend Our Lives
S2E2 📦 Passiv: Successful Financial Software Without Resorting to Dark Psychology
Full disclaimer, Nick approached us about the possibility of an interview and sponsorship. We were curious about how to start a successful finance software company using behavioral investing ideas so agreed to the interview. It turns out the Passiv team is serious about developing a platform that fosters application of good behavioral investing principles, so we will also have him back for a second interview to give a tutorial about the platform. Keep your ears peeled for that.
Some links to topics discussed:
The $FRDM ETF, which "...seeks to invest in countries with higher human and economic freedom scores." (https://freedometfs.com/frdm/).
"Q: How Would a Mathematician Invest?" by popular ETF provider Van Eck (https://www.vaneck.com.au/how-would-a-mathematician-invest).
"Why Market Index Investing Works" by Matt from Breaking the Market, a blogger whom we subsequently interviewed, check the feed (https://breakingthemarket.com/why-market-index-investing-works/?subscribe=success#blog_subscription-2).
"Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." (Business Week, July 5, 1999)" (http://www.jameslau88.com/warren_buffett_and_his_wisdom.htm).
S2E1 🔪 Putting Wil to Work: A Brutally Honest Accounting of Bitcoin Losses
S1E10 Season 1 Recap
Here Ben and Wil casually reflect on what stood out from Season 1, noting common themes amongst interviewees. They began to look at how to develop a framework for optimal investor temperament from these observations, a project which will continue in the next episode.
The Stanford course mentioned was Value Investing: An Introduction, by Professor Kenneth Jeffrey Marshall (http://www.kennethjeffreymarshall.com/). On 11th January 2020 his Advanced Value Investing Workshop (http://www.advancedvalueinvestingworkshop.com/) will start, recommended!
S1E9 A Mathematician Uses Non Ergodic Returns to Destroy The Hopes and Dreams of Naive Index Fund Investors
Today's guest is Leigh Caldwell, partner at Irrational Agency (https://www.irrationalagency.com) and author of The Psychology of Price (http://amzn.to/leighbook). He began a mathematics degree from age 14 and is therefore the perfect man to check Ben's compounding spreadsheet discussed in Episode 1. Not only do we discuss his book and the exponential function but also an economy simulator that he has programmed called Euristica (https://www.youtube.com/watch?v=7a9FKsLf96U). We managed to get him on record registering an interest in using this tool to model different personal finance and investing behaviors across a population, so keep an eye on his future work. Considering these aspects and his blog about cognitive economics (http://www.knowingandmaking.com), Leigh is a very useful guest to have in completing this first season of The Behavioral Investor. Links to some items discussed in the episode are found below.
- The Compound sheet: https://docs.google.com/spreadsheets/d/1k0IDctrpzyLjFFjYqTiPXZuSTwYFJdK-QZQ3AG859Dw/edit?usp=sharing
- Episodic future thinking paper mentioned by Wil: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0214397
- The Stanford Marshmallow Experiment: https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment
- Mental accounting: https://www.investopedia.com/terms/m/mentalaccounting.asp
- On rabbits and compounding: https://pawleysblog.com/2012/09/26/the-rabbit-effect-on-your-portfolio-compounding-and-the-time-value-of-money/
- Sand and the chessboard: https://en.wikipedia.org/wiki/Wheat_and_chessboard_problem
- Family Fortunes book: https://amzn.to/3lFIrD4
- Trump would be richer if he invested his inheritance in an index fund: https://fortune.com/2015/08/20/donald-trump-index-funds/
...or would he? Maybe he knows about non-ergodic returns ;-)
Leigh can be found here:
Twitter: https://twitter.com/leighblue
Blog: http://www.knowingandmaking.com
FIrm: https://www.irrationalagency.com
Book: http://amzn.to/leighbook
TEDx talk: https://www.youtube.com/watch?v=7a9FKsLf96U
S1E8 What Behavioral Investors Can Learn from Ross Bentley, Racing Coach and Former IndyCar Driver
Ross Bentley runs Speed Secrets, a race driver coaching service in Canada. He is also co-athor of Performance Pilot along with Phil Wilkes, whom we interviewed in Episode 3. His expertise not only covers the physical act of driving but also how to tame the mind, such as his presentation The Mental Game of Driving. He also has an eBook on the same topic, Mental Imagery Guide for Drivers. He has worked with Stanford psychology researcher Carol Dweck and grad student Fred Leach to apply Carol's growth vs fixed mindset concept to race drivers. For further info on this, she has written a book called Mindset. He was also involved in the development of the Garmin Catalyst™ Driving Performance Optimizer. Listen up for some great insights into how to program the mind with imagery and triggers and some enthralling racing stories.
Find him on:
Facebook
Twitter
Instagram
Youtube (this link takes you to the Mental Game of Performance Driving playlist)
S1E7 How T.E.P. Investments Arbitrages Small Cap Investor Behavior
INTERVIEWEE:
Tom Perfrement is a successful young Australian small-cap investor who also currently happens to be the nation's 432nd best tennis player (Tennis Australia Rankings). Along with studying for an MBA at Oxford University and helping lead a not for profit (Good Data Institute), he also runs T.E.P. Investments as his full-time occupation. At one point Tom also achieved a coveted red heart on Hot Copper. Listen in as he pitches a few small and nano-cap ASX businesses whilst talking about his method of behavioral investing and achievements in self-mastery.
The discussion covered some psychology research about loss aversion (Tversky & Kahneman, 1992) and fear of heights (Stefanucci & Proffitt, 2009), see references below.
Regarding his assessment of Connexion Telematics, see this valuation on Strawman. Wil's analysis of the same is found here.
TOM CAN BE FOUND HERE ON SOCIAL MEDIA:
REFERENCES
Stefanucci, J. K., & Proffitt, D. R. (2009). The roles of altitude and fear in the perception of height. Journal of experimental psychology. Human perception and performance, 35(2), 424–438. https://doi.org/10.1037/a0013894
Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5, 297-323. https://doi.org/10.1007/BF00122574
THE BEHAVIORAL INVESTOR CAN BE FOUND HERE ON SOCIAL MEDIA:
S1E6 Creative Destruction and Capitalising Internally Developed Intangible Assets
This episode discusses a number of papers and some history. A summary of this is found in this document:
https://docs.google.com/document/d/14kKraJWU3hcRkXSidd_1X46ApqOPFGmYn7HWWV9W2QQ/edit?usp=sharing
S1E5 Star Principle, Strawman, Why the Value Factor Drawdown is Ending
- Our #FINTWIT profile.
- The Star Principle.
- Star on Strawman.
- Strawman Index.
- Andrew Page on Strawman.
- The Felder Report.
- 200 years of the value factor.
- Samonov on The Acquirer's Podcast.
- Value is Dead, Long Live Value.
- Cellphones worse than drink-driving.
- Smartphone addiction on Google Scholar.
- Vanguard Value Index Fund.
- ZIG.
- Expectations and the Role of Intangible Investments.
S1E4 Behavioral Investors Without Borders - Blue Ocean Strategy, Compounding in Nature, Compounding One's Income vs Compounding FOR Income and Some Rants
TOPICS
0-18:24 - Blue Ocean Strategy
18-24:20 - Compounding in nature example: Prerast Velika Kapija (https://twitter.com/behafin/status/1317876834109952001)
24:20-43:50 - Comparing investing one's income and investing for income: (https://drive.google.com/file/d/1Qb4juXVZwtkrXoF4u5sm3prhdX6xYI6d/view?usp=sharing)
43:50-1:01:52 - How the stock market, as one of many mechanisms for purchasing a business, creates a distraction for amateur investors
1:01:52 - end - How being able to buy parts of very expensive businesses, cheaply (shares), introduces people into the market who lack discipline or expertise.
S1E3 Interview with an A330 Instructor About How Pilots Manage Behavior
We interview Phil Wilkes, coauthor of Performance Pilot: http://performancepilot.net/.
S1E2 What a Psychologist Says About Hacking the Dopamine Reinforcement System to Compound Your Way to $1B
Tom Watts is a clinical psychologist. We interviewed him in order to learn from a master of human nature. His practice can be found here.
At the start of the episode, we mention a long term financial compounding example described in the previous episode. You are encouraged to listen to it for context. The same goes for this spreadsheet illustrating how much you can make from long term investing of this sort.
If you put the methods to work Tom discusses in this episode, you will have a chance attaining the goal expressed in that sheet.
Concepts and researchers mentioned by Tom with some Google Scholar links to send you down some profitable rabbit holes:
- Delayed Discounting Theory.
- Mazur J.E. An adjusting procedure for studying delayed reinforcement. In: Commons M.L, Mazur J.E, Nevin J.A, Rachlin H, editors. Quantitative analysis of behavior: Vol. 5. The effect of delay and of intervening events of reinforcement value. Hillsdale, NJ: Erlbaum; 1987. pp. 55–73. (Eds.) [Google Scholar].
- Mazur on Neurotree.
- More on the K component of the delayed discounting formula.
- Smart goals.
- Episodic Future Thinking.
S1E1 Putting Ben to Work
Ben mentions a few resources in the interview.
Consolations of Philosophy by Alain de Botton:
https://www.youtube.com/playlist?list=PLxRuhrcSjnv2weFRcqOeCpk4Wy7_hay2j
Family Fortunes: How to Build Family Wealth and Hold on to It for 100 Years by Will and Bill Bonner:
https://www.amazon.com.au/Family-Fortunes-Build-Wealth-Years-ebook/dp/B008EB6BU0
A spreadsheet illustrating the effect of compounding $35,000 in a low cost index fund over 3 careers:
https://docs.google.com/spreadsheets/d/1k0IDctrpzyLjFFjYqTiPXZuSTwYFJdK-QZQ3AG859Dw/edit?usp=sharing