I’m curious about testing what I might call the “cool guy” theory of investor irrationality — that people give money to whoever they perceive as cool, which is defined by who other people think is cool.
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(If there’s a real name for this I’m not familiar with it, though it does sound like Keynes’ “beauty contest” concept.)
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Sounds like if most money is following “cool guy” dynamics, then momentum & value premiums should be a big thing; if plenty of investors are willing to be “contrarian” then they won’t. Does that sound correct?
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Also, if “cool guy” dynamics are prevalent, we should see lots of “runs” of stocks going steadily up and then crashing, at whatever the timescale of social narrative moves at (months?). Ie they should have a preferred timescale instead of being true GBMs. Does *that* sound right?
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I thought that idea was that you can do 11% better. Not just make 11%/year.
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I might be on too much caffeine and confused between percentages and percentage points.
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11% return YoY is more like "value add" investing... where there is considerable active asset management involved and significantly more risk
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My reading of this lit (From back years ago) is that there used to be a value premium, but that it has been coming down (As people produce factor ETFs that milk the correlations). A possible exception is during crises, as people get irrational and sell sell sell
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Are the people who actually know finance just arguing that the EMH is true?https://www.institutionalinvestor.com/article/b14zbgrj5pflsc/the-great-divide-over-market-efficiency …
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