Capital Management

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Capital Management
2014-02-28 11:53:12

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  1. Anchoring
    Attach or "anchor" your thoughts or beliefs on a singular reference point that actually has no logical reference to your decision
  2. Mental Accounting
    separating money into different groups (mentally) based on some subjective reasoning
  3. Confirmation Bias
    having preconceived notions about something (orĀ  someone) and then giving more attention to those details that support your preconceived notions and less attention to those details that deny your preconceived notions.
  4. Hindsight Bias
    the onset of a past event was easily predictable based on facts x, y, and z when really it was not predictable
  5. Overconfidence Bias
    too much confidence in your own skills or knowledge
  6. Gambler's fallacy
    individuals assume that a random event is less likely (or more likely) to occur based on a series of previous events
  7. Herding Behavior
    Individuals like to mimic the actions (or inactions) of a group at large
  8. Overreaction Bias
    • Individuals place too much importance on new information
    • ie good info is REALLY good, bad info is REALLY bad
  9. Prospect Theory
    gains and losses are valued differently by individuals would rather not lose than to gain
  10. January Effect-anomaly
    small firms have larger market returns in January, than in the rest of the year
  11. Day of the Week Effect - anomaly
    Mondays typically have a lower average return than the other four trading days of the week
  12. IPO Pricing - anomaly
    typically, investors that purchase an IPO stock on day 1 and then sell it the same day earn a much higher return, then investors that purchase on day 1 and sell it on day 365
  13. Risk
    cash flows will not materialize as we expect them to because of something. Something = risk
  14. External risk
    systematic (measured in BETA) effects large group of assets or companies