This marks the beginning of what will become the body of the Investor Manifesto series that I have wanted to write for sometime now.
A manifesto is essentially a written statement available to the public that describes in our case my views on investing. This will cover what Meir Statman has described as four lessons:
Know your wants
Know financial facts
Know human behavior
Know the trade-offs between wants and balance them
There won’t be any specific order to how the series is developed but a central tenet throughout will be looking at the underlying reasoning for answering all of these questions. By focusing on the underlying reasoning we will develop a sound basis for making informed decisions based on that trade-off of wants. To often explanation for research results do not pass what I call the smell test or involve distracting hand waving the often defies sound economic reasoning. Sometimes it is assumed that because reasoning is published using statistics or looks authoritative it must be correct.
Richard Thaler in his book Misbehaving describes the difference between thinking like a economics professor (Econ) or a human. Decision making between what is expected «as if» a person was an Econ or a normal everyday person is often very different. Meir Statman likes to think of it as finance for normal people. We are normal. This matters whether we are shopping for a new car, selling collectible baseball cards, or investing in the stock market.
To be continued …