This exercise is commonly referred to as the Feynman Technique and is named for the theoretical physicist of the same name. Richard Feynman, known for his work in quantum mechanics, set forth a simple, three-part formula for gaining greater knowledge: Figure out what you don’t know. Educate yourself. Teach it to a child or novice.

It is precisely because the variables impacting the market are so varied and complex that it requires a simple set of rules for mastery. Just as a human trying to calculate velocity, rotation, wind speed and trajectory would drop the Frisbee, an investor mired in every piece of market minutiae is doomed to both a prodigious headache and poor perfor

Capital markets, driven by the same human actors that arbitrarily dehumanize their peers, are nothing more than a series of positive and negative feedback loops careening toward and away from the mythical notion of fair value. This circular relationship between cause and effect is known as reflexivity.

Throughout this book, I have professed a number of my more controversial beliefs about how asset managers should go about their business. I believe that a systematic approach to investing is optimal and that manager discretion should be very limited. For one, I believe that managers should be paid for the degree to which they adhere to a process an

The behavioral investor understands and seeks to mimic the best parts of passive investing – low turnover, rock bottom fees and appropriate diversification – without succumbing to absentminded buying and selling.

Money and capital markets are shared hallucinations whose value is more psychological than physical. The human mind gave rise to financial markets and to seek to understand them without an appropriate understanding of their genesis is folly in the extreme. There is no understanding markets without understanding people.

Arbitraging the national psyche The Minnesota Multiphasic Personality Inventory (MMPI) is a widely used assessment of mental disorders that provides interesting insights into the American national psyche. Between 1938 and 2007, the levels of psychopathology in the US, as measured by the MMPI, have risen greatly. Specific areas on the rise include:

Along the way, the soaring market cap, bolstered by positive beliefs, has provided a number of real benefits. Amazon’s success has allowed them to fund further growth at remarkably low financing costs. Their reputation has allowed them to recruit some of the best talent in the tech industry as well as hide costs by including stock options as a larg

Hardcore passive management enthusiasts overemphasize the overarching pull toward efficiency and mistake the general trend for the Gospel Truth. In so doing, they overlook valuable opportunities for return enhancement that are available to behavioral investors. Advocates for traditional active management are quick to point out the behavioral anomal