INSEAD Library

Includes bibliographical references and index

Digitized

CONTENTS More than you know xvii 1 Acknowledgments Introduction PART 1 Investment Philosophy : Introduction Be the House: Process and Outcome in Investing Hit Me From Treasury to Treasure Prioritizing Process Investing-Profession or Business? Thoughts on Beating the Market Index The Scouting Report Evaluating the Winners The Investing Profession Versus the Investment Business 15 17 19 The Babe Ruth Effect: Frequency Versus Magnitude in Expected Value Batting with the Babe The Downside of Hardwiring Bulls, Bears, and Odds From OTC to OTB A Useful Analogy Sound Theory for the Attribute Weary: The Importance of Circumstance-Based Categorization Circumstance Over Attributes The Three Steps of Theory Building When, Not What Risky Business: Risk, Uncertainty, and Prediction in lnvesting Rocket Science From Uncertainty to Probability How Predictions Change Future Payoffs The Hot Hand in Investing: What StreaksTell Us About Perception, Probability, and Skill Finding the Hot Shot Streaks and Skill Toss Out the Coin Toss Streaks and Luck Time Is on My Side: Myopic Loss Aversion and Portfolio Turnover One or One Hundred Explaining the Equity-Risk Premium The Value of Inactivity Pictures Worth a Thousand Words PART 2: Psychology of lnvesting Introduction 8 Good Morning, Let the Stress Begin: Linking Stress to Suboptimal Portfolio Management Why Zebras Don't Get Ulcers Why Money Managers Do Get Ulcers Shortening Horizons Imitating Ulysses 9 All I Really Need to Know I Learned at a Tuppenvare Party: What Tuppenvare Parties Teach You About lnvesting and Life A Tip from Shining Shoes You Can Fool Mother Nature CONTENTS xi All I Really Need to Know . . . The Psychology of Investing 10 All Systems Go: Emotion and Intuition in Decision Making Emotions and Decisions Two Follows One The Affect Heuristic When the Experiential Fails Affect: Individual Versus the Collective 1 Guppy Love: The Role of Imitation in Markets 1 Guppy See, Guppy Do Feedback-Negative and Positive Follow the Ant in Front of You Herding from the Grapevine 12 Beware of Behavioral Finance: Misuse of Behavioral Finance Can Lead to Bad Thinking Sorry Syllogism Mug's Game? Bombs Away Money See, Money Do 13 Raising Keynes: Long-Term Expectations, the El Farol Bar, and Kidding Yourself What Do You Expect? Speculation and Enterprise Visiting El Farol l d d i n g Yourself PART 3: Innovation and Competitive Strategy Introduction xii CONTENTS The Wright Stuff: Why lnnovation Is Inevitable Take Off with Recombination How Does Wealth Happen? Sic Itur udAstra (This Is the Way to the Stars) Creative Destruction-Here to Stay Pruned for Performance: What Brain Development Teaches Us About Innovation Too Clever by Half The Dynamics of Innovation Investors: Use the Brain Staying Ahead of the Curve: Linking Creative Destruction and Expectations Losing Pride Goldilocks Expectations: Too Cold, Too Hot, Just Right Out with the Old, In with the New The Mind Makes a Promise That the Body Can't Fill Expectations and Innovation Is There a Fly in Your Portfolio? What an Accelerating Rate of Industry Change Means for Investors Fruit Flies and Futility Speed Trap? Investor Evolution All the Right Moves: How to Balance the LongTerm with the Short Term Managing for the Long Term Deep Blue's Lessons Strategies for Winners Strategy as Simple Rules CONTENTS xiii 19 Survival of the Fittest: Fitness Landscapes and Competitive Advantage A Peek at Another Peak Fitness Landscapes Look Before You Leap? Tools of the Trade-off 20 You'll Meet a Bad Fate If You Extrapolate: The Folly of Using Average P/Es Social Versus Security Nonstationarity and Historical PIES Why the Past May Not Be Prologue Bounded Parameters Unpacking the (Mental) Baggage 21 I've Fallen and I Can't Get Up: Mean Reversion and Turnarounds Returns and Growth Death, Taxes, and Reversion to the Mean I've Fallen and I Can't Get Up PART 4: Science and Complexity Theory Introduction 22 Diversify Your Mind: Thoughts on Organizing for Investing Success Ant Brain A-Mazing Getting a Diversity Degree Creativity and Investing 23 From Honey to Money: The Wisdom and Whims of the Collective Smart Ant Traveling Salesman? Follow the Ant ... Delphic Decision Markets The Stock M a r k e t t h e Ultimate Hive? Swarm Smarts 24 Vox Populi: Using the Collective to Find, Solve, and Predict The Accuracy of Crowds Needle in a Haystack Weighing the Ox with the Vox Estimating Printers with Populi And Now, For the Real World 25 A Tail of Two Worlds: Fat Tails and Investing Experience Versus Exposure Tell Tail What Fat Tails Mean for Investors 26 Integrating the Outliers: Two Lessons from the St. Petersburg Paradox Bernoulli's Challenge What's Normal? St. Petenburg and Growth Stock Investing Integrating the Outliers 27 The Janitor's Dream: Why Listening to Individuals Can Be Hazardous to Your Wealth Beyond Newton Sorting Systems The Stock Market as a Complex Adaptive System Using What You've Got 28 Chasing Laplace's Demon: The Role of Cause and Effect in Markets Evolution Made Me Do It Laplace's Demon CONTENTS xv Interpreting the Market Investor Risks 29 More Power to You: Power Laws and What They Mean for Investors Zipf It The More Things Change Catch the Power ... 30 The Pyramid of Numbers: Firm Size, Growth Rates, and Valuation Why Big Fierce Animals Are Rare Find Your Niche Dear CEO: We've Made It to the Fortune 50! You're Fired Extrapolative Expectations Conclusion. The Future of Consilience in Investing Notes References and Further Reading Index