behavioral finance

Just finished study session 3. Frankly, these readings are quite strange. Not that I hate when authors use first person as their voice. These readings are not as straight forward as the readings in L1 and 2. I feel a good writer could wrap the same content in 5 pages and not 95. In addition, the comparison between weathermen and finance professionals is totally flawed. What is your opinion? How do you handle this stuff?

I schwesered it. Schweser has it on something like 30 pages, including questions and the usual end of chapter summary.

Man, it Sucks

I read about half of the behaviour finance and got really tired of it. I’m gonna use schweser instead and not touching the curriculum again except for the questions.

Yeah it seemed to me that the CFAI readings were unecessarily long. But then perhaps behavioural finance is a more important topic than i expect…

The thing I am nervous about is the subtle differences between some of the terms. Like loss aversion and fear of regret. Does the CFA material spell it out more? I guess some practice problems will iron that out.

I Schwesed it as well, & the condensed version was boring enough. notenoughtheta, I know you mean. I think that in order to learn how to distinguish the differences, it will just take doing practice problems.

I think its an extremely important topic since its the true basis for most decision making. But the way they teach it is kind of dumb in my opinion. I just can’t figure out how the hell they’re going to ask questions on it and make them difficult? Q: “Why do people keep forecasting even though it doesn’t work?” A: “Overconfidence and Arrogance” They could have explained that in 1 paragraph, yet it took almost an entire section. Seems weird. And I hope not all of the CFAI texts are like this for L3.

Someone whos overconfident will add to a losing positioon, right? Like he buys at 10, stock hits 5, and he refuses to sell, so he doubles up…

*shrug* I really enjoyed the CFAI readings on behavioral finance. Then again, I’ve enjoyed most of the CFAI readings… except LII derivatives. I think behavioral finance can be pretty important, seems like a subject that permeates IPS and Wealth Mgmt.

Over the course of studying the various sections you will get beaten down with behavior finance. Don’t worry about it too much it comes back in other sections too.

@sbmfj: I think that is incorrect. If you have a PT, and stock price falls you add to the position if you are confident in your PT (whereas most people would do nothing, and even refuse to look at their statement). If the price rises you start selling off slowly, whereas people have the tendency to add to the position or increase the PT even though there is less room for gains (hence more risky) and/or no basis for increasing the PT.

thanks adavydov7. Not sure i agree with you (am i overconfident?). what do you mean by PT?

PT = price target, I think. sbmfj - I think you are right, the overconfidence is in the price target. Cognative dissonance.

@smbfj and theta: yes PT=price target. Also, I am not wrong, please see CFAI Vol. 2 pg. 86-87 “Price-Target Revisionism” and “The Ebullience Cycle.”

adavydov7 Wrote: ------------------------------------------------------- > @smbfj and theta: yes PT=price target. > Also, I am not wrong, please see CFAI Vol. 2 pg. > 86-87 “Price-Target Revisionism” and “The > Ebullience Cycle.” You guys are going to find that overconfidence is defined in different ways in different part of the curriculum. In some readings overconfidence is shown as having smaller that necessary confidence intervals around prediction points, which leads to surprises. This is party what makes L3 so hard. You can’t get definitive answers on everything and details are extremely important.

but im pretty sure last year, in the context of a dperson who add’s to a losing trade, was a sign of overconfidence. Ill check the CFAI material tongiht for those pages that adavydov7. I thought u were done mwvt9…ie passed last yr

sbmfj Wrote: ------------------------------------------------------- > but im pretty sure last year, in the context of a > dperson who add’s to a losing trade, was a sign of > overconfidence. Ill check the CFAI material > tongiht for those pages that adavydov7. I am not saying it isn’t. I was just cautioning everybody on the board from writing off a second viewpoint because another may be correct. > > I thought u were done mwvt9…ie passed last yr I am done. I am just a nerd and like to help.

We will need a lot more of ‘M* power’ (mwvt9, McLeod, maratikus) to help us out of this.

mwvt9, your quite dedicated!!