[free ebook] The Insightful Investor: How to use cutting-edge psychology to invest smarter

Do you really want to become a better investor? Do you want to learn from your mistakes and learn to make better investment decisions?

For decades, behavioral economics/finance has been uncovering all the ways we make mistakes as investors. What’s been missing is how to correct these mistakes — how to turn these behaviors on their heads and make better investments.

The Insightful Investor does just that. In this free ebook, you’ll learn

Continue reading “[free ebook] The Insightful Investor: How to use cutting-edge psychology to invest smarter”

Tradestreaming users like new format of my newsletter (do you?)

If you haven’t noticed recent changes (or are not yet subscribed) to my weekly newsletter (Sundays), it appears that some recent tweaks to the format are being well received by the rest of us.

The point of my weekly email is to help you quickly get a feel for all the cutting edge news and analysis impacting today’s serious investor.

I’ve begun adding more links/news and categories including:

  • investment products
  • social media, technology and investing
  • investment strategies and research
  • the financial advisory business
  • investor behavior

You can see an example here and subscribe here.

By the way, I didn’t just randomly pick the new categories above — I’ve spent a lot of time thinking about how investors learn to become better and how this information breaks down into categorization.

The changes have resulted in a slightly higher open rate (how many people are opening my weekly message) and and almost double the numbers of clicks on links. I take that as a good thing.


Are you reading my weekly Tradestreaming newsletter? What do you think — do you like the changes?

What would you like to see more of from me?  Let me know in the comments below.

Best books on behavioral finance

Finding the right books on behavioral investing, behavioral finance, behavioral economics (whatever you want to call it) is tough.

I’ve compiled a list of some of the best selling behavioral finance books on Amazon.  While we can argue which are better (please rank/add your favorites!), it’s important to be able to start the discussion.

From Thaler to Mauboussin to Montier to Shiller, there are a lot of books being written now on the behavioral aspects of investing. Some are good — some are better.

What do you recommend? Continue reading “Best books on behavioral finance”

Tradestreaming Cascade (Week ending 3/26/2011)

A new addition to Tradestreaming, the Tradestreaming Cascade is a highlight reel of some of the past week’s most interesting information.  Much of this comes from my Twitter feed, @newrulesinvest.

How financial blogging landed me a book deal (New Rules of Investing): Blogging is hard to monetize.  Here’s one way financial bloggers can begin to build businesses off their work.

Why investors overpay for certain investments (The Economist): Liquidity and lottery tickets and why the carry trade fails at the wrong time and just below investment grade corporate bonds perform best. From Expected Returns: An investor’s guide to harvesting market rewards.

Trades busted in new FocusShares ETFs (ETF Trends): Scottrade’s new ETF line, Focus Shares, had multiple trades busted.  Some shares saw a 98% drop as Nasdaq canceled them.

Wealth managers refine niche marketing techniques (Registered Rep) : Growing reliance on segmentation of new business development by wealth managers.  This time, Indian Americans.

Investing as a form of peer pressure: teaching kids to invest young (MarketPsych): In an interview with Tile Financial, this money manager/sentiment data player digs deeper to help understand kids’ motivation to invest.

10 most tracked funds, fund groups and stocks (AlphaClone): Most popularly followed hedge funds and stocks held by these hedge funds as tracked by piggyback investment research powerhouse, AlphaClone.

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Tradestreaming Cascade (Week ending 3/26/2011)

A new addition to Tradestreaming, the Tradestreaming Cascade is a highlight reel of some of the past week’s most interesting information.  Much of this comes from my Twitter feed, @newrulesinvest.

The speed of light could turn the middle of the ocean into a stock-trading center (io9): The death of distance is reversed as physical location becomes more important in high-frequency trading circles.

Why do bowlers get hot hands while basketball players don’t? (Peter McGraw): While basketball players don’t exhibit it, bowlers do show streakiness.  From this perspective, I think certain types of investors may show hot hands.

Effects of ending syndication of financial blog content (The Rational Walk): A blogger stops giving his content away to aggregation sites and sees more pageviews and more $$.  Hmmm.

Hedge Fund bets $40M that Twitter Can Predict the Stock Market (Huffington Post): Based on Bollen and Mao’s research, hedge fund launches to harness the power of social media.  Tradestreaming, baby.

How your money is managed: the mutual fund industry up close (Tradestreaming): Great new book written by Hamacher and Pozen  — everything you wanted to know about mutual funds.

A new class of Internet startups is trying to turn data into money (Economist): Huge payoff and huge money in Big Data startups in finance.  This article profiles three co’s racing to secure their share.

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Individualism, investing and getting trampled by the herd

It’s hard to be a rugged individualist in the investing world.  So much is predicated on media hype and momentum investing.  It turns out that best results are typically produced by investors that are careful and confident.  One way to view this is via the BB&K Model:

Source: Bailard, Biehl & Kaiser

These researchers judged investors on two attributes, method of action (careful or impetuous) and level of confidence (confident or anxious).  The result was a framework that divided investors into 5 classes of people:

  • Individualist: careful, confident and often takes a do-it-yourself approach
  • Adventurer: volatile, entrepreneurial and strong-willed
  • Celebrity: follower of the latest investment fad
  • Guardian: highly risk averse and wealth preserver
  • Straight arrow: shares the characteristics of all the above equally

It shouldn’t be surprising that the individualist performs best.  Much of the collective tradestream is made up of celebrity adventurers, pumping and jumping on every new stock or fad.  Many of these momo guys make a lot of money, until they don’t.  It’s important for investors to be able to dissociate themselves — to unplug from the tradestream — for a period of time to rationalize their motivations for investing in general and in specific securities in particular.

Do we need to be in the stock market at all? Are we trying to play defensive or opportunistically?   So many times we meet with clients with existing, large portfolios who don’t know why they’re investing.  Like so many other things in life, if you don’t know why you’re participating, you probably shouldn’t be.  The stakes are too high, the noise too loud and the gravitational force of trend chasing just too strong.

For those independent enough to withstand all the pernicious hamstringing behaviors unaware human investors display, it’s a lonely path, long and winding.  But, like most valuable pursuits in life, worth the effort.

Learn more

We’ll be discussing more about this and other essential traits for stock pickers in an upcoming Tradestreaming Radio episode with Jim Valentine, author of a great new book, Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts

More research points to power in piggyback investing

Tradestreaming is all about finding the right investor willing to share the most valuable information.  Sometimes, sharing important information is required by law.  Like, when an investment fund or company is required to report portfolio holdings.  Piggyback investing using regulatory filings to create all-star portfolios made up of the best picks by the world’s most profitable investors.

Warren Buffett is clearly one worthy of piggybacking and a new research paper further dissects his historical performance and lays the groundwork for investors willing to mimic Buffett’s investment moves.

In Overconfidence, Under-Reaction, and Warren Buffett’s Investments, authors Hughes, Liu, and Zhang examine what contributes to a market underreaction to news that Buffett’s Berkshire Hathaway has made a new investment.

Findings of market under reaction to Berkshire Hathaway’s public disclosures through quarterly filings of their holdings of publicly traded company stocks through Form 13f with the SEC for up to a year or more rationalizes Buffett’s long-term investment strategy.  We investigate over confidence as   an   explanation   for   under   reaction   indirectly   by   examining   associations between  changes   in Berkshire  Hathaway’s  holdings   and  changes   in both  financial   analysts’ recommendations   and   institutional   holdings   for   the   same   stocks…

The link to overconfidence is based on the argument that overconfidence on the part of analyst and fund managers is likely given the highly competitive investment community in which they perform and the high rewards afforded   those   who   distinguish   themselves   as   possessing   independent   expertise.     As   a complementary  finding,   insiders  whose overconfidence   is  more   likely  to overweight   similar private information to that of Buffett tend to follow Buffett’s lead when buying by, as net sellers, selling less.

Interesting aside, the study also finds net sales of corporate insiders of stocks held by Berkshire Hathaway tend to decrease when those holdings increase consistent with shared private information.


Hughes, John S., Liu, Jing and Zhang, Mingshan, Overconfidence, Under-Reaction, and Warren Buffett’s Investments (July 5, 2010). Available at SSRN: https://ssrn.com/abstract=1635061

[Hat tip: CXO Advisory Group]