Michael Covel talks with John H. Cochrane on today’s podcast. Cochrane is the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. Covel and Cochrane cover wide territory today. Covel and Cochrane discuss Warren Buffett’s quote that he “would have made a fortune” if the banks weren’t bailed out; crony capitalism; why “a good Bear failure may have saved us from a bad Lehman failure”; the cost of regulation; Uber, taxi service, and regulation; why commodities keep getting cheaper and cheaper, but people with expertise keep getting more and more expensive; the idea of discretion; and healthcare.
My guest today is Meir Statman, the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University. His research focuses on behavioral finance. He attempts to understand how investors and managers make financial decisions and how these decisions are reflected in financial markets. Meir’s latest book, “Finance for Normal People: How Investors and Markets behave” has been published by Oxford University Press.
The topic is his book What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions.
In this episode of Trend Following Radio we discuss:
How we make decisions, and how these decisions are reflected in markets
What investors want besides the utilitarian aspect of money
Philanthropy and status
Why Madoff’s clients’ own greed helped them fall into a trap
Envy and happiness
The fear of losing and the fear of missing out
Mental accounting
Statman’s drivers and early influences
Libertarianism vs. paternalism
Social Security and mandatory retirement savings
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John Cochrane: “Rats in cages do a pretty good job of utility maximizing. Yet, when you ask them why they’re doing things they just chew up the survey forms. Are we really so much more self-aware?”
Zero understanding of trend following can be seen in Noah Smith’s piece here. Trend following is almost the exact opposite of his description. Lazy research and writing.