Value Investing and Behavioral Finance

Behavioral Finance

Dr. Daniel Crosby is a behavioral finance expert and a value investor. He works with organizations to develop products and messaging to maximize positive investment outcomes.

Mr Daniel argues that what is generally thought of irrational is somehow rational that is staying away from crowd or herd mentality or not having herd influence into ones’ decision making process.

Why Defiance ?

Principled defiance, defiance literally means ‘bold in disobedience’. Defiance in investing means being disobedient to the herd mentality. But this should be based on fundamental principles. Being weird is good, He gives a very famous example of a Hedge Fund manager who was right on the Housing Bubble. There may be totally irrationality in markets, But one should take cautious measure as well.

Taking Intelligent Risk is Important.

Intelligent Risk, risk is a very murky concept in finance. In reality volatility is not a measure of true risk, the real risk is the probability of falling short of the things that are more important. Mr. Daniel tells a story about one of his students. One of his students received couple of responses from her Phd applications. She was fearful. Opening letter appeared to her a major risk to life, luckily responses were positive. This psychological behavior of fear of loss driving paralysis on ones’ actions is very important to investors as well.

At last, he concludes his talk with Warren Buffet’s famous statement “Be Fearful when others are greedy and greedy when others are fearful”. Mr Daniel states that the best time to buy is when every one is at panic. The lessons which is hidden in this talk is to be courageous enough to bet against markets. But in a very principled manner, with through research taking out emotions from one’s investing decisions and behavior, then stay defiance and believe in your luck. After all luck is a dominant factor in investing.

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References:

1 – Daniel Crosby Talks on Psychology of Investing

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