Speaker: Jason Voss, CFA, Content Director, CFA Institute
Moderated by: Ashwin Vibhakar, CFA, Senior Advisor & Executive Sponsor Future of Finance, CFA Institute
Written by: Chetan Shah, CFA, Senior Portfolio Manager, Religare Invesco and Director, IAIP
The behavioral aspects are getting increasing attention in the fields of finance, and particular in the field of investing. Biases like “confirmation”, “overconfidence”, “loss aversion”, “mental accounting”, and “anchoring” have been observed amongst analysts and professional investors. However, behavioral finance is silent on how to deal with it. It is a diagnosis without a prescription to put in Jason’s words.
So Jason came out with his model of mind with activities divided between the left and right lobe of the brain. The left brain is responsible for analytical, logical and analytical part of thinking based on facts and numbers. Whereas the right side is more about creativity and intuition. While we have been using the left brain in the field of investing, tapping the right brain can improve returns considerably. He mapped the investing skills to the mind by dividing it into four quadrant with top left having models like CAPM, APM; the bottom left resulting into paralysis with analysis; bottom right representing behavioral finance and finally top right having investment policy statement, intuitive investor etc. The goal is to migrate from bottom left to top right quadrant. The goal is to move from intelligence to wisdom. And the connecting link is intuition.
Intuition is neither system 1 thinking nor system 2 nor should it be confused with instinct. According to modern philosophy it is an immediate apprehension of an object by the mind without the intervention of any reasoning process. From the investing angle it is like identifying relevant information or signal from the vast sea of information or noise.
An advocate of using the whole brain, Jason showed how simple techniques of meditation can help one tap the right brain. One could break out of the negative feedback loop by thinking about the most awesome event in one’s life.
For the complete coverage of #IIC15 (for India Investment Conference 2015) kindly click on the links to the posts on the WordPress or search under the tab “India Investment Conference”:
- India Investment Conference (#IIC15) – Rebooting India to Realize its Potential…
- The Coming Consumption Boom from the Emerging Middle Class, by Vikram Mansharamani
- Financing Infrastructure to Reignite Growth, by the Infra Panel
- Mean Reversion of Equity Valuations, by Russell Napier
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