Behavioural Finance Quotes

If anyone could anticipate a market drop, no one would ever invest in the market above the level to which it will decline. That is to say, market corrections are unforeseen events.

Since money is fungible, efforts to save small amounts on small purchases are absurd if you ignore them during pricier transactions. $1.75 is still worth $1.75.

More often than not, extreme events revert to the mean—the average—for no other reason than that result is more likely.

If you are wearing yellow goggles, every blue thing will appear green to you. It is your perception, and it is your reality.

Identical information can lead to opposite conclusions based on relative perceptions of its receivers.

Humans are not machines. They analyze information through the lenses of their experience, knowledge, and cognitive biases. All of it makes their perception, their unique viewpoint.

Economic conditions may differ from period to period, but human psychology is embedded among us and will not change.

Once bitten, twice shy isn't a very good investment strategy.

Despite the intervening six decades of scientific inquiry since Selye’s groundbreaking work, the physiological impact of the emotions is still far from fully appreciated. The medical approach to health and illness continues to suppose that body and mind are separable from each other and from the milieu in which they exist. Compounding that mistake is a definition of stress that is narrow and simplistic. Medical thinking usually sees stress as highly disturbing but isolated events such as, for example, sudden unemployment, a marriage breakup or the death of a loved one. These major events are potent sources of stress for many, but there are chronic daily stresses in people’s lives that are more insidious and more harmful in their long-term biological consequences. Internally generated stresses take their toll without in any way seeming out of the ordinary. For those habituated to high levels of internal stress since early childhood, it is the absence of stress that creates unease, evoking boredom and a sense of meaninglessness. People may become addicted to their own stress hormones, adrenaline and cortisol, Hans Selye observed. To such persons stress feels desirable, while the absence of it feels like something to be avoided. When people describe themselves as being stressed, they usually mean the nervous agitation they experience under excessive demands — most commonly in the areas of work, family, relationships, finances or health. But sensations of nervous tension do not define stress — nor, strictly speaking, are they always perceived when people are stressed. Stress, as we will define it, is not a matter of subjective feeling. It is a measurable set of objective physiological events in the body, involving the brain, the hormonal apparatus, the immune system and many other organs. Both animals and people can experience stress with no awareness of its presence. “Stress is not simply nervous tension,” Selye pointed out. “Stress reactions do occur in lower animals, and even in plants, that have no nervous systems…. Indeed, stress can be produced under deep anaesthesia in patients who are unconscious, and even in cell cultures grown outside the body.” Similarly, stress effects can be highly active in persons who are fully awake, but who are in the grip of unconscious emotions or cut off from their body responses. The physiology of stress may be triggered without observable effects on behaviour and without subjective awareness, as has been shown in animal experiments and in human studies.

Negative emotions if not managed well can be dangerous as they impact on our behaviour and channel negative in the key areas of our lives including finances, relationships, physical health, mental health and spiritual health

With gambling or investing, if your gains are quick and easy, you will tend to keep the money in a separate mental account. So, if you subsequently lose it, you won't feel as upset as you'd think if you lost the money you brought to the casino. Yet, they are both pots of currency.

Timing the market is a biased investor's game.

The motives to sell during a market capitulation are rarely rooted in a long-term plan. If they were, the market would never be oversold.

Timing an unforeseeable event is more likely a stroke of luck than skill.

It doesn't matter what you paid for an investment. If it no longer suits your objectives or has poor prospects, you should sell it.

The motivation to break even is so tempting that you'll even consider doing so at greater levels of risk than you'd typically accept. If you've heard the expression "double or nothing," you've seen this bias in action.

It is odd behaviour to ignore smaller denominations when transacting high values since large transactions provide the most obvious opportunity to keep more of your money.

Stocks aren't like a pair of shoes that go on sale but keep the same useful value. The value of stocks are based on their economic prospects, which change constantly.

Ironically, investing in many seemingly safe investment options puts conservative investors at the greatest risk of declining purchasing power.

Once your investment account has touched a peak value, it's almost impossible to forget that number.

It is psychotic and hateful behavior. But such behaviour is typical in many war zones. Cartel thugs have gone beyond the pale because they are completely immersed in a violent conflict, living like soldiers in the trenches. Imagine the life of Zetas thugs in the war-torn northeast of Mexico, fighting daily with soldiers and rival gangs, moving from safe house to safe house, completely divorced from the reality of normal citizens. In these ghastly conditions they commit atrocities that the world finds so hard to comprehend. For many of these cartel soldiers on the front line, war and insurgency have become their central mission. While thugs have traditionally talked about fighting over drug smuggling, now many are talking about smuggling drugs to finance their war.

If you've convinced yourself that a market correction is likely (your belief) to justify holding cash rather than investing (your action), you may be under the influence of cognitive dissonance.

Familiarity bias drags you to the safety of your comfort zone and, in doing so, unwittingly increases your risks by limiting diversification and investment opportunities.

If you excuse investment concentration by telling yourself that your familiarity with domestic companies or specific sectors helps you understand those investments better, your familiarity bias is the excuse for your familiarity bias.

The Economist has produced a more sophisticated set of ‘back-of-the-envelope’ estimates in an interactive basic income calculator for all OECD countries.4 This purports to show how much could be paid as a basic income by switching spending on non-health transfers, leaving tax revenues and other public spending unchanged. Interestingly, even on this very restrictive basis, a cluster of seven west European countries could already pay over $10,000 per person per year. The United States could pay $6,300 and Britain $5,800. Obviously, for most countries, the level of basic income that could be financed from this tax-neutral welfare-switching exercise would be modest – though, especially for bottom-ranked countries such as South Korea ($2,200) or Mexico (only $900), this largely reflects their current low tax take and welfare spending. The Economist’s interactive calculator also aims to calculate what tax rises would be needed to pay a basic income of a given amount. For the UK, the calculator estimates that the cost of a basic income of one-third average GDP per head would require a 15 percentage point rise in tax take. Its calculations can again be questioned in their own terms. However, all these back-of-the-envelope exercises are flawed in more fundamental ways. First, they do not allow for clawing the basic income back in tax from higher-income earners, which could be done with no net cost to the affluent or to the Exchequer, simply by tweaking tax rates and allowances so that the extra tax take equals the basic income paid. Second, they do not take account of administrative savings from removal of means testing and behaviour conditions. Administration accounted for £8 billion of the £172 billion 2013–14 budget of the UK’s Department of Work and Pensions, much of which will have gone to pay staff in local job centres to monitor and sanction benefit recipients. This does not include hundreds of millions of pounds paid to private contractors to carry out so-called ‘work assessment’ tests on people with disabilities, which have led to denial of benefits to some of society’s most vulnerable people. Third, they compare the cost of a basic income with the existing welfare budget and assume that all other areas of public spending remain intact. Yet governments can always choose to realign spending priorities. The UK government could save billions by scrapping the plan to replace the Trident nuclear missile system, now estimated to cost more than £200 billion over its lifetime. It could save further billions by ending subsidies that go predominantly to corporations and the affluent.

Was opposition to the SIT so critical to the government that it was willing to sacrifice the entire credibility of the finance ministry and the law ministry in the Supreme Court? And why did government oppose the SIT so resolutely? It had certainly not opposed it in the Gujarat case, and there are several other precedents of SITs quoted in the order. Judging from the desperate behaviour of the government, the only inference that can be drawn is that this SIT had to be opposed at any cost, because important people controlling the Congresss empire were involved in the larceny. The government’s obduracy in this matter clearly reflects its growing shamelessness and brazenness about corruption. It continues to show contempt and apathy to the Supreme Court order, and instead of starting the process of implementing the order, it is focusing on how to get it reviewed, recalled or diluted, including contesting the order and seeking its recall.

For many years I had a sign next to my desk that said "Don't question authority. They don't have the answers either.