Читать книгу Behavioral Portfolio Management - C. Thomas Howard - Страница 18

Behavioral Portfolio Management, henceforth referred to as BPM, is an approach to managing investment portfolios that assumes most investors make decisions based on emotions and shortcut heuristics. It posits that there are two categories of financial market participants: Emotional Crowds and Behavioral Data Investors.

Emotional Crowds are made up of those investors who base decisions on emotional and intuitive reactions to unfolding events and anecdotal evidence. Human evolution has hardwired us for the short run, loss aversion, and social validation, which are the underlying drivers of today’s Emotional Crowds. Emotional investors make their decisions based on what Daniel Kahneman refers to as System 1 thinking: automatic, loss avoiding, quick, with little or no effort and no sense of voluntary control. ^[1]

On the other hand, Behavioral Data Investors, henceforth referred to as BDIs, make their decisions using thorough and extensive analysis of available data in order to tease out stable pricing relationships. BDIs make decisions based on what Kahneman refers to as System 2 thinking: effortful, high concentration, and complex. BPM is built on the dynamic interplay between these two investor groups.

MPT, as the prevailing theory of financial markets, posits that even though there are numerous irrational investors (think emotional, heuristic investors), the price discovery process is dominated by rational investors who quickly arbitrage away any price distortions. This implies a number of things regarding markets, such as prices fully reflecting all relevant information, the lack of excess returns to active investing, and the superiority of indexed portfolios over their actively-managed counterparts. In short, MPT contends that rational investors dominate the financial pricing process.

What if it is the other way around, that is, what if emotional investors dominate? Put another way, what if emotion trumps arbitrage? If this were the case, then price distortions would be common and could be used to build superior portfolios relative to the corresponding indexed portfolios. Active management could generate superior returns. In fact we would see the impact of emotions in every corner of the market and they would have to be taken into account when managing investment portfolios.

There is now ample evidence, which I will review shortly, supporting the argument that Emotional Crowds dominate market pricing and volatility. Emotional Crowds drive prices based on the latest pessimistic or optimistic scenarios. Amplifying these price movements is a market in which trading is virtually free and so there is little natural resistance to stocks moving dramatically in one direction or the other. “If anything is worth doing, it is worth overdoing,” is the market’s mantra.

Rational investors, or what I call BDIs, react to the resulting distortions by taking positions opposite the Emotional Crowd. But they are not of sufficient heft to keep prices in line. As a consequence, the resulting distortions are measurable and persistent. BDIs are able to build portfolios that harness these distortions as they are eventually corrected by the market, either rationally or simply because the Crowd is now moving in the other direction.