Behavioral Biases & the Asset Mgmt Industry

The behavioral bias section got me thinking philosophically. Given that study after study has shown that achieving superior returns consistently over time is rarely if at all possible…

…is it a reach to say that the vast majority of the industry is in of itself just a manifestation of one gigantic behavioral bias (e.g. overconfidence)? It feels sometimes that the PM “strategy” readings can be endless verbosity followed by a footnote conclusion of “studies showed that this actually doesn’t work”.

I don’t think it really matters if it is or it isn’t, people want to make money so the industry is there. Just something interesting to think about.

No, it’s not a reach. Some individuals do seem to have an ability to identify winners. Broader media reach outlining this success fuels herd mentality and fear of missing out, leading to wider willingness to participate in the actively managed industry. This demand meets the supply of people who think “I can do that

Studies show results in a macro way, the great majority of PMs fail to beat a passive-driven portfolio after fees. It doesnt mean some actually couldn’t beat the system. In fact, there is a good chunck of people that beat the system all the time: the extraordinary rich and famous ppl around the world in all industries. The great majority of us, over time, in a consistent way, will never reach that state of success. I think those studies want to open our eyes and warns us about the dangers ahead if we choose reckless paths without proper self-assesment of our talents and strategies.