People Make Mistakes

Posts have been sparse while I have focused on doing a fair amount of reading around the subject and fighting with data.

I have been reading Stocks for the Long Runby Jeremy Siegel, and Behavioural Finance: Insights into Irrational Minds and Marketsby James Montier.

I have also got about half way through Robert Shiller's course on academicearth.org. Siegel's is one of the set books.

Montier's book is one of the best sources I have come across so far, and he sites further academic papers for every point he makes.

Siegel's study is fascinating from the length of time it looks at. A lot of investors feel 5 years is long enough to make a decent assessment of the likely success of a strategy. Siegel looks at over 200 years of financial market returns! Admittedly the large majority of well kept data comes from a single market (the US), but he does look at other markets too. I will discuss some of the findings in further posts.

Shillers's course is fascinating (though academics and portfolio managers perhaps need to have a chat to Garr Reynolds about improving their communication skills). What I particularly enjoy is the contrasting views that seem to get air time. So far, it has had guest lectures from David Swenson, Carl Ichan and Andy Redleaf.

I have not yet found a study that looks at the pros and cons of using IRR as a measure for investor behaviour. The latest DALBAR study has just been released. It is interesting seeing the effects of a very significant 2008 year on this ongoing study. I am working through their process, and will no doubt have my own critique of their method in time, but I haven't come across any alternative benchmarking methods to look at.