Professor Hersh Shefrin: Fear, Hope, and the Psychology of Investing (EP.167)

<p>In many episodes of this podcast we refer to the psychological component of investing, and today we are very happy to host a global authority on the subject and share an absolute masterclass about behavioural psychology as it relates to our finances and the decisions we make. We welcome Professor Hersh Shefrin to the show, who is the author of many books including the seminal <em>Beyond Greed and Fear, </em>which he wrote in the last 1990s, and still holds much value and relevance in today's climate. Professor Shefrin is kind enough to share some reflections on how his understanding of the themes discussed in the book has evolved since those days and unpacks some great pieces from the book for listeners to digest. We get into some specific and technical questions about investing, looking at pursuing the alpha, momentum, and index funds, before our guest also weighs in with some broader, more philosophical responses to our queries. The conversation covers the psychological needs of investors, expected returns, and of course biases. Listeners can expect to come away with a clearer and more detailed picture of ideas we often reference, so make sure to join us for this incredible exploration with Hersh.</p> <p> </p> <p><strong>Key Points From This Episode:</strong></p> <p> </p> <ul> <li>The key message about market psychology from <em>Beyond Greed and Fear</em>. <strong>[0:03:23.1]</strong></li> <li><em>Beyond Greed and Fear</em>'s three themes: heuristic-driven bias, framing effects, and inefficient markets. <strong>[0:04:39.3]</strong></li> <li>Reflecting on these themes in a modern context and how our understanding has been refined. <strong>[0:12:53.6]</strong></li> <li>Considering index funds in light of market efficiency frameworks. <strong>[0:21:08.3]</strong></li> <li>Assessing one's ability to pursue the alpha and Professor Shefrin's advice to this end. <strong>[0:27:14.1]</strong></li> <li>Possible reasons for large numbers of active money managers at institutions. <strong>[0:30:20.6]</strong></li> <li>Un