Dan Kahneman Interview 4 years ago

[mickeyd]

http://www.ifa.com/Library/Support/Articles/Popular/KahnemanInvestorscantbeatmarket.htm


Prospect theory argued that people's degree of pleasure depends more on their subjective experience than objective reality, as the rational model of economics held.
A shopper, for example, might drive across town to buy a $10 calculator instead of a $15 one, but forgo the same trip to purchase a $125 jacket for $5 less, illogically believing the greater percentage saved on the calculator makes the trip more worthwhile.

Prospect theory led to "loss aversion," which explained why investors clung to losing stocks rather than sell. Investors were more likely to sell stock they purchased at $50 a share if it rose to $70 and seemed overvalued; but if they bought the same stock at $90 and it fell to $70, they were disinclined to sell, even if shares still seemed overvalued.

 

[ladelfina]

I still struggle with this. In my former, more free-spending, life, I tended to measure my "scores" (purchases, mainly of shoes) by how much I had saved off the list price. Manolo Blahniks at Filene's Basement for $50?? "But the original price was $350!!" My mom: "I never paid $50 for a pair of shoes in my life!" Ok, so Mom has 10 pairs of practically identical $20 plastic shoes from Sears or wherever, so her expenditure trumps mine, but I digress...

It's very hard for me to dump losing stocks 1) because I believe firmly in the 'buy-and-hold' strategy, and 2) because by the time I start thinking about selling them they're worth so little anyway it seems hardly worth the effort, while the one chance in ten of a turn-around..??!...

I am definitely NOT the type to spend hours or go across town to save $5, but when something is under my nose and seems like a deal, I load up the truck.

I only wish I could have the courage (with stocks) to go with my instincts. I would be a happy girl if I had bought (Apple) when I thought I should have. I tend to mis-trust myself.

 

[Nords]

It's very hard for me to dump losing stocks 1) because I believe firmly in the 'buy-and-hold' strategy, and 2) because by the time I start thinking about selling them they're worth so little anyway it seems hardly worth the effort, while the one chance in ten of a turn-around..??!...

It's taken me five minutes to learn the basics of sell discipline and about five years to actually start practicing it.

When it goes down, it's either:
- a loser to be sold on a stop loss, or
- a winner that's on sale to buy more of.

I've learned to only buy 25% of my total allocation at a time. When I'm at that allocation, I set a trailing stop loss below its price and stop worrying about it. Another stock opportunity will come along sooner rather than later!

Having said all that, the whole process uncomfortably resembles real work and I'm half-inclined to chuck it all for a nice low-cost small-cap international value index fund.