‘Dumb Money’ Exposes the Baffling Allure of Bad
Investment Advice
https://www.nytimes.com/2023/10/01/opinion/dumb-money-movie-gamestop-stock.html
We aren’t literally calling retail investors dumb. What we are saying is that retail investors are smart people who unfortunately behave in dumb, self-destructive ways. Their actions reflect overconfidence, financial ignorance and a wealth-reducing love of gambling.
Cited studies:
Dumb money: Mutual fund flows and the cross-section of stock returns
https://static.fmgsuite.com/media/documents/52323383-ce36-46cb-8244-00d36f106538.pdf
The Behavior of Individual Investors
https://www.umass.edu/preferen/You%20Must%20Read%20This/Barber-Odean%202011.pdf
Boys will be Boys: Gender, Overconfidence, and Common Stock Investment
https://academic.oup.com/qje/article-abstract/116/1/261/1939000
Just How Much Do Individual Investors Lose by Trading?
https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/justhowmuchdoindividualinvestorslose_rfs_2009.pdf
Real-Time Warnings:
My take from September 1, 2020:
https://thehill.com/opinion/finance/514624-will-the-feds-recasting-of-its-monetary-policy-strategy-help-the-us-economy/
In response to the pandemic, the Fed initially provided much needed relief to credit markets by acting as a “lender of last resort” and by providing emergency liquidity. Even after credit markets stabilized, the Fed has sustained an aggressive stance and undertaken record levels of asset purchases (the balance sheet rose by nearly $3 trillion over the past six months) to provide economic relief. It is, however, unclear how such actions are going to aid an economy dealing with a health crisis.
Financial market distortions, new asset bubbles and worsening of the wealth gap may be the ultimate result of the Fed’s well-intentioned but misguided policy actions. More generally, a downside of the Fed’s aggressive actions is that it has often let fiscal authorities off the hook and prevented implementation of some much-needed structural reforms.
My take from February 16, 2021:
https://thehill.com/opinion/finance/538921-have-misguided-policies-led-to-recent-asset-bubbles-and-boom-bust-cycles/
Some recent policy actions undertaken to alleviate the effects of the pandemic shock, though well-intentioned, are misdirected and may lay the foundation for a new boom-bust cycle. A few micro-bubbles have already emerged, and there is broader concern about elevated asset values and the growing temptation to “reach for yield.”
My take from August 3, 2021:
https://thehill.com/opinion/finance/566130-its-time-to-ease-up-on-the-stimulus-accelerator/
By encouraging risky investments, QE contributes to surging asset prices and a widening of the wealth gap. It is increasingly apparent that pandemic-related stimulus has contributed to the speculative excesses observed in cryptocurrencies and meme stocks.
https://www.nytimes.com/2023/10/01/opinion/dumb-money-movie-gamestop-stock.html
We aren’t literally calling retail investors dumb. What we are saying is that retail investors are smart people who unfortunately behave in dumb, self-destructive ways. Their actions reflect overconfidence, financial ignorance and a wealth-reducing love of gambling.
Dumb money: Mutual fund flows and the cross-section of stock returns
https://static.fmgsuite.com/media/documents/52323383-ce36-46cb-8244-00d36f106538.pdf
The Behavior of Individual Investors
https://www.umass.edu/preferen/You%20Must%20Read%20This/Barber-Odean%202011.pdf
Boys will be Boys: Gender, Overconfidence, and Common Stock Investment
https://academic.oup.com/qje/article-abstract/116/1/261/1939000
Just How Much Do Individual Investors Lose by Trading?
https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/justhowmuchdoindividualinvestorslose_rfs_2009.pdf
My take from September 1, 2020:
https://thehill.com/opinion/finance/514624-will-the-feds-recasting-of-its-monetary-policy-strategy-help-the-us-economy/
In response to the pandemic, the Fed initially provided much needed relief to credit markets by acting as a “lender of last resort” and by providing emergency liquidity. Even after credit markets stabilized, the Fed has sustained an aggressive stance and undertaken record levels of asset purchases (the balance sheet rose by nearly $3 trillion over the past six months) to provide economic relief. It is, however, unclear how such actions are going to aid an economy dealing with a health crisis.
Financial market distortions, new asset bubbles and worsening of the wealth gap may be the ultimate result of the Fed’s well-intentioned but misguided policy actions. More generally, a downside of the Fed’s aggressive actions is that it has often let fiscal authorities off the hook and prevented implementation of some much-needed structural reforms.
My take from February 16, 2021:
https://thehill.com/opinion/finance/538921-have-misguided-policies-led-to-recent-asset-bubbles-and-boom-bust-cycles/
Some recent policy actions undertaken to alleviate the effects of the pandemic shock, though well-intentioned, are misdirected and may lay the foundation for a new boom-bust cycle. A few micro-bubbles have already emerged, and there is broader concern about elevated asset values and the growing temptation to “reach for yield.”
My take from August 3, 2021:
https://thehill.com/opinion/finance/566130-its-time-to-ease-up-on-the-stimulus-accelerator/
By encouraging risky investments, QE contributes to surging asset prices and a widening of the wealth gap. It is increasingly apparent that pandemic-related stimulus has contributed to the speculative excesses observed in cryptocurrencies and meme stocks.
Classics:
- Against the Gods: The Remarkable Story of Risk
- Capital Ideas: The Improbable Origins of Modern Wall Street
- Devil Take the Hindmost: A History of Financial Speculation
- A Random Walk Down Wall Street: The Best Investment Guide That Money Can Buy by Burton G. Malkiel
- Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel