Hi Guys,
A couple of days ago Ted linked to an article by Jason Zweig that asks the question “Just How Dumb are Investors”? Both David Snowball and I responded. Here is the internal Link to that exchange:
http://www.mutualfundobserver.com/discuss/discussion/20291/jason-zweig-just-how-dumb-are-investorsMy answer did not provide much comfort to the average investor. My reply was driven by the experimental data that demonstrates many holes and chinks in the average investors’ toolkit and psychology.
One constant observation in many of my submittals is that a ton of folks are statistically innumerate. An illustration of that innumeracy is that even fractions (that’s all probabilities are) present an interpretation hazard to many likely investors.
Here is an often asked question that serves to highlight the problem. Which is a higher risk, a 1/1000, a 1/100, or a 1/10 chance of a dismal outcome? When asked, 25 % of the general population get it wrong. College students are slightly better since only 20% of them make a mistake. That’s a damning score.
We don’t do a very good job at identifying, evaluating, and scoring risk in life scenarios much less in investment decision making.
The lack of education in the statistical area is a major deficiency. So I searched for some risk identification and control videos that might make learning a little easier and painless.
During my search, I stumbled on an investment lecture series that completely diverted my focus. The series was produced by FinancingLife.org. It was designed for beginning investors. In no way am I suggesting that you folks are beginners, but you just might want to introduce this fine series to friends or relatives. Here is the generic Link:
http://financinglife.org/It’s hard to fault their overarching 4-point philosophy: “The secret to financing life boils down to four principles: (1) start saving early, (2) diversify your investments, (3) minimize costs, and (4) stick to your plan.” The investment learning video series is divided into 10 short parts. Here is a Link to lesson 3 that centers on controlling risk with asset allocation:
http://financinglife.org/how-to-invest/investing-for-beginners/asset-allocation/I suggest that you check-out this series. It is very professionally done. I suspect that not much will be new information to seasoned MFOers, but some new members might find it useful. Videos such as those referenced have the potential to lift investors out of the dumb category.
I have located some nice statistical learning videos that attempt to simplify comparative statistical numbers. Cambridge professor David Spiegelhalter seems to be a major player in the understanding uncertainty arena. Here is a Link to several of his videos:
https://vimeo.com/tag:david+spiegelhalterSpiegelhalter likes to place rare, life impacting statistics into a framework of micromorts and microlives. A micromort is a 1 in 1 million chance happening. Only some of his stuff is easy going. Good luck.
Best Regards.
