Behavioral Finance: Building a Competitive Advantage

Published on
August 28th, 2019
Duration
42 minutes

Behavioral Finance: Building a Competitive Advantage

The Exchange ·
Featuring Rick Bensignor, Clare Flynn Levy, and Brett Whysel

Published on: August 28th, 2019 • Duration: 42 minutes

Rick Bensignor, founder and president of The Bensignor Group, is joined by Clare Flynn Levy, founder and CEO of Essentia Analytics, and Brett Whysel, the co-founder of Decision Fish, for a conversation on behavioral finance. The experts discuss how cognitive biases can destroy alpha, as well as what awareness and analysis can help mitigate that destruction. Additionally, the panel provides several techniques to avoid falling victim to bad habits like personal bias, procrastination, and breaking your own rules. Filmed on May 30, 2019 in New York.

Comments

Transcript

  • WM
    William M.
    31 August 2019 @ 22:31
    Know thyself said the ancient Greeks. Know when to hold them and when to fold them said Kenny Rogers... Being a perfectionist, obsessive compulsive etc. will make it really hard to trade well because the reality is that it's more of a art - based on experience and practice and learning from failure - than an exact science. It also helps to know if you are investing in something longer term or just speculating on the short term price movement. If the former then you better know that investment inside out and monitor it regularly to see that the underlying fundamentals haven't changed, like a good company getting a new CEO who makes a dumb acquisition etc.
  • TR
    Thomas R.
    30 August 2019 @ 21:52
    Not just a discussion - but when Rick shares his story and gets questioned about it, you can see the subtle human nature of resistance, perhaps a touch defensiveness, show up. We are all human beings.
  • RR
    Rex R.
    30 August 2019 @ 21:13
    It is very difficult to listen to Rick Bensignor.
  • MF
    Maryam F.
    29 August 2019 @ 08:29
    A very interesting and frank discussion on behavioural factors when trading, however so much more could have been presented in terms of data or research, particularly on types of trades and investment approaches within particular markets. Also no mention of Taleb. Surely there must be some data to trawl through and do systematic review?
  • SS
    Shanthi S.
    29 August 2019 @ 08:03
    “Feels longer...” lol!!
  • MC
    Minum C.
    28 August 2019 @ 17:48
    A useful interview. In terms of understanding the ego of a typical money manager, it would be even even more useful to put up data on how many of your clients are brought in the door after a run of positive alpha vs. how many sign up for your service after a run of negative alpha. I'm guessing it's very tilted. One thing I don't necessarily agree with is the idea that adding/trimming doesn't add value. It can add value in ways that are hard to quantify. It can reduce portfolio volatility as position size exceeds a previously determined level. If one is managing a fund with a daily NAV strike, this matters. No need for automatic 'self-half' rules, but definitely a need for maintaining portfolio weights according to a previously determined and stated method of risk management. It is an example of following one's process which is actually a good thing even if it doesn't add immediately quantifiable value. A related topic is a discussion on market conditions and how this can impact the probability of adding value by trimming/adding. It seems more likely that trimming/adding will add value in a flat but oscillating market than in a trending market. This discussion was missing in the interview which seems weird because the S&P 500 has been flat but oscillating the last 18 months whereas it was trending for many years before that.
    • GG
      Gregory G.
      29 August 2019 @ 02:33
      Minum.....this interview was about trader bias...not the bias' of the market. Pay attention.
  • SG
    Sven G.
    28 August 2019 @ 16:36
    man this was tough to get through.... the interviewer is not the best on RV thats for sure!
    • GG
      Gregory G.
      29 August 2019 @ 02:37
      Sven....the interviewees had a lot to say about this very dry subject. It is a fascinating area of investigation. AND...its not easy for anyone to sit thru a discussion like this and reflect on what's wrong with YOU. The interviewer offered some insight on how his biases (didn't) work for him....an insight on how to reflect on our own actions.
    • KC
      Kenneth C.
      29 August 2019 @ 03:54
      i watched it at 1.5 speed, so wasnt all that bad. i think you can look at quite a few of the interviewers and see their early work wasnt the best but continued to improve. I expect we ll see this with Rick.
  • DP
    Devraj P.
    28 August 2019 @ 15:17
    I’d data analytics make every one best who would be loosing money 🧐🧐🧐
  • JH
    Jon H.
    28 August 2019 @ 14:45
    Very brave, powerful and useful to hear how behavioral biases strikes experts too. Thank you!
  • KC
    Kirk C.
    28 August 2019 @ 13:47
    seemed like an ad for an extra layer of consulting expense when the purchase of a book on the subject is all that is really required followed by rational decision making based on what was learned from the book
    • TT
      Tokyo T.
      29 August 2019 @ 00:24
      Markets aren't rational. That's why there is an opportunity to make money. We think we're acting rationally, when in fact we're heavily influenced by our many biases. The point is how to become more self-aware. Coaching is just one option that can help in this process. More knowledge (reading a book), isn't the key to behavior change.
    • GG
      Gregory G.
      29 August 2019 @ 02:41
      Oh, Kirk. Have you ever really analyzed yourself....write that analysis down...give it to a person who knows you well...and then ask for feedback on your self analysis? Let me guess...you were way off!? That's why you pay someone else to do it.
    • KC
      Kenneth C.
      29 August 2019 @ 04:01
      Van Tharps book on position sizing and trade management is a great resource. Rick didnt say how he projected his price targets but a solid grasp of chart technicals also a must in managing a trade, particularly stopping out.
    • KC
      Kirk C.
      31 August 2019 @ 13:22
      I have read a lot of books on behavioral finance and economics since first studying Munger's speeches decades ago - it aint that tough to behave rationally in markets that are not rational - and self analysis is an on going process that does not require getting all touchy-feely. Sheeeesh - old school I guess. Just not a fan of consultants and layers of fees for hand holders adding dubious value.
  • SC
    Sean C.
    28 August 2019 @ 13:27
    Very Performance Analytics and Self-discipline focused. Little discussion on things like Herd Mentality or irrational decision making. Several of Rick's stories are the perfect example of what not to do!
  • RM
    Russell M.
    28 August 2019 @ 12:40
    Interesting. I suggest that there is a difference between ‘the gut’ and ‘intuition.’ For an active trader who has experience, the gut can become more than worry; it can give information. Intuition is different than analytical reasoning, but is still cerebral. Intuition is a different form of consideration, but is still above the neck. The gut is lower, more visceral. So I would say that buy decisions, and visions of sugar plums may be intuition, but are different than the gut. When you fear doom of loss in your gut, in your viscera for a position that is on, that is not the same as cerebral intuition; that is your lower visceral intelligence. In my experience, when the gut says ‘danger Will Robinson ! ‘, I take cover immediately, because why not. It has saved me many times. I think that is a distinction that actually does make a difference.
    • GG
      Gregory G.
      29 August 2019 @ 02:49
      Your distinction is made but not being well understood. YOU feel fear in your gut...and your intuition may be a new idea. I agree with you on that but only in this respect: you and I both feel those emotions in the same way; that is, my fear is felt in the pit of my stomach but someone else may manifest their fear in the palm of their hands or a stiffness in their spine. Our contrarian bias may make us face our fear and look at a mounting loss on the chart....when we should have cut and run a long time before. the interviewees are the ones who can give us the clue to run.
  • TT
    Tokyo T.
    28 August 2019 @ 12:30
    Trusting your gut in the markets depends on the situation. However, it's probably better to explore and verify with data before acting on your hunch. Even Kahneman mentioned markets are too random and noisy to trade on gut instinct. No market, stock, or time is ever going to be the same. It's challenging to have highly accurate mental models like sportspeople or emergency workers. Therefore our gut instinct can be a bias to making better investing situations. So having and following a process/system will be superior to pure instinct over time.
    • GG
      Gregory G.
      29 August 2019 @ 02:50
      HERE, HERE!!