Behavioral Finance & Investment
Psychology
- Behavioral Finance indicates investors are prone to act irrationally, thus materially contributing to the inefficiencies that are always present in the market
We utilize investment psychology & behavioral finance to our advantage to take advantage of these inefficiencies, in conjunction with our fundamental research, to create consistent & repeatable process-based alpha generation. - Superiority / Overconfidence: Seemingly one of the greatest problems in professional money management is that managers are often “the smartest guy in the room” or wholeheartedly believe that they are.
We continuously examine our investment thesis to determine where we have gone wrong or could go wrong. - Anchoring: When estimating the unknown, giving undue or incorrect emphasis to information already known or believed when devising the estimate.
We let our research dictate our investment assumptions rather than emotions or preconceived notions. - Confirmation Bias: Stems from overconfidence and anchoring, influencing how we interpret information and favor data that supports existing beliefs.
We take an unemotional, neutral view of factual datapoints and let them dictate the resulting conclusion. We also constantly review datapoints that may contradict or slow our fundamental thesis. - Loss Aversion – Fear of Loss: The tendency to feel the pain of loss more strongly than the pleasure of gain, often causing investors to hold losing positions too long.
- Loss Aversion – Disposition Effect: The tendency to sell winning positions while holding onto losing ones.
All decisions are based on continuous analysis of new data. We cut losses short and let winners run. - Sunk Costs: Lost costs are unlikely to be recovered.
Our investment discipline is strictly forward-looking. - Investor Euphoria / Panic: Drives asset prices to levels not supported by fundamentals.
All our research is built upon a deep fundamental base.
