Comments on: Why crazy people rule the market, and how you can profit from it

By: 6 Life Lessons from the Stock Market | Balance Junkie

6 Life Lessons from the Stock Market | Balance Junkie — Thu, 08 Apr 2010 09:38:54 +0000

[...] as any other group of human beings. In fact, I think I agree with Pop over at Pop Economics that crazy people rule the market. A lot of them may be people with MBAs and PhDs, but they’re just as human as you and [...]

By: Pop

Pop — Tue, 19 Jan 2010 13:08:41 +0000

Hey, thanks for the comment and book recommendation (and for the writing suggestion). I appreciate it.

It’s been a little while since I’ve read “A Random Walk Down Wall Street”. I should pick it up again. I think it’s noteworthy though that Burton Malkiel’s warmed up to behavioral finance a bit. Check out this quote from SmartMoney last year:

When A Random Walk was fist published, behavioral finance was much less prominent than it is today. What kind of contribution have the behaviorists made?

I teach behavioral finance in my course on financial markets, and I believe the contributions are really very great. Now, behavioral finance doesn’t give you a way to beat the market. But it teaches us a lot of lessons about how to avoid mistakes. The behaviorists teach about overconfidence — that we’ve got some illusion of control, and that we tend to trade too much. And that’s absolutely right; it’s a wonderful lesson for investors.

Ibbotson Associates data suggest that, over the long haul, the markets have an average annual rate of return of something like 9½% since 1926. But average investors don’t make anything like 9½%, because they tend to get in at the top and out at the bottom.

By: Sean

Sean — Tue, 19 Jan 2010 08:01:33 +0000

A good book to read would be “A Random Walk Down Walk Street,” which focuses on the efficient market theory. I do, however, believe that it’s possible to beat the market, even over the long term, but only a small number of people can do that. The rest of the people should go with index funds and dollar cost averaging. Making less money is better than not making money.

By the way, don’t you mean: Getting an ‘S’ might feel mediocre, but it sure beats an “NS.” Just thought you may want to be consistent your elementary school grades (I think it’s currently no longer a letter-graded system). =)

By: Carnival of Personal Finance #240 | Growing Money

Carnival of Personal Finance #240 | Growing Money — Tue, 19 Jan 2010 07:47:48 +0000

[...] 7 Deadly Sins of Personal Finance Balance Junkie: Your Financial Hierarchy of Needs Pop Economics: Why crazy people rule the market, and how you can profit from it Bible Money Matters: Blueprint For How To Make Money With A Blog: Income Generators, Optimizing [...]

By: Pop

Pop — Tue, 19 Jan 2010 03:48:32 +0000

Thanks, I really appreciate that.

By: Sharkey

Sharkey — Tue, 19 Jan 2010 02:51:47 +0000

I agree, great article. Looking forward to more!

By: Carnival of Personal Finance #240 : Carnival of Personal Finance

Carnival of Personal Finance #240 : Carnival of Personal Finance — Mon, 18 Jan 2010 18:12:05 +0000

By: Pop

Pop — Mon, 18 Jan 2010 16:22:51 +0000

Hey, thanks for commenting! You are officially my first comment from a human, ever. I hope I see you around.

By: 2 Cents

2 Cents — Mon, 18 Jan 2010 15:33:02 +0000

Very insightful article and some great advice. I’m not a fan of the efficient market hypothesis either. You offer some nice alternatives. Thanks!

By: Carnival of Personal Finance – Support Haiti Edition | Finance Blog

Carnival of Personal Finance – Support Haiti Edition | Finance Blog — Mon, 18 Jan 2010 11:18:35 +0000

[...] Why crazy people rule the market, and how you can profit from it @ Pop Economics – I think it was the picture in this article that caught my eye. Some great tips in this article on how to profitably invest in the market. [...]