Study’s Findings Challenge Loss-Aversion Theory

One tenet of behavioral finance is the “disposition effect” — the tendency for investors to sell winners rather than losers in their portfolio. And a common reason cited for why that occurs is aversion to loss; locking in losses causes pain, while locking in winners causes positive feelings. But a new study offers evidence that loss aversion isn’t at the heart of the disposition effect. In “Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect”, authors Itzhak Ben-David and David Hirshleifer find that investors’ beliefs — not preferences, like the preference not to […]

Investor Fears Have Rogers Sounding Bullish

Top fund manager John W. Rogers, Jr. says that the combination of lingering fear among investors and improving economic and corporate conditions are signaling a time to buy stocks. “Housing appears to be bottoming, interest rates are low and management teams at U.S. companies are improving their businesses as a direct result of tribulations encountered in recent years,” Rogers writes in his latest Forbes column. “Cost-cutting has led to record profits, and balance sheets are brimming with cash. That leaves companies in a better position today than they were four years ago.” Fears remain about Europe and China, Rogers says, […]

Gardners See Plenty of Opportunities

While a number of recent financial scandals have led many investors to grow weary of the stock market, Motley Fool co-creators Tom and David Gardner say investors shouldn’t lose faith in stock investing. “I think that it is a great time to invest — I have always felt that way,” David tells Yahoo! Finance’s Daily Ticker. “While the backdrop of the system and a lot of skepticism is out there, probably it’s also a sign that there’s a lot of money outside the market, and when it comes back in, I feel really good about where my money’s positioned and […]

Value & Momentum: The Best of Both Worlds

In his latest column for Canada’s Globe and Mail, Validea CEO John Reese looks at stocks that have both value and momentum on their side.  “Don’t chase hot stocks. If you’re a serious investor, you’ve probably heard this piece of wisdom hundreds of times,” Reese writes. “And generally it’s good advice — but incomplete. The full version should be: ‘Don’t chase hot, expensive stocks.’” Reese says the distinction is a key one. “High-flying, overpriced stocks often lose steam and plummet to the ground,” he says. “But high-flying inexpensive stocks can continue to fly high for some time — and they […]

Nygren: Volatility Isn’t Risk

For years, volatility and risk have been synonymous in stock market discussions. But in recent commentary, top performing fund manager Bill Nygren says otherwise. In a piece posted on Oakmark’s web site, Nygren notes that Oakmarks’ funds have been more volatile this year, and cites a couple reasons. One, he says, is that in a quest for yield in this low-yield bond climate, many investors “have begun to pay nearly unprecedented prices for stocks that distribute most of their earnings as dividends.” That has caused those stocks — which include many telecoms and utilities — to trade like bonds, rising […]