Barron's 4/8/17
A portion of the third Chartered Financial Analyst exam is dedicated to the study of behavioral economics. Behavioral economics attempts to explain how investors actually think and make investment decisions, instead of how a rational person with perfect information makes decisions (the traditional finance approach).
I love when I can connect the dots to what I am studying to something relevant in the real world, and this is such a situation. This Barron's article discusses funds that make investment decisions based on investor's inherent biases! There really is a fund for everything now.
One of the biases discussed in the article is anchoring. Anchoring occurs when an analyst or investor becomes anchored to an initial viewpoint, and does not sufficiently update this viewpoint when given new information. It is an example of a cognitive bias - one that is based in faulty reasoning or insufficient information. The other type of bias is an emotional one - for example, endowment bias, which occurs when an investor believes that a security is special simply because it is owned. (For example, "Oh, I could never sell that stock - I inherited it from my mother!)
Read this article to discover how several managers are attempting to exploit the biases we know exist.