Is there any empirical reason to think that knowledge about ‘rationality’ is particularly helpful for investing?
Yes. Rationalists are likely to know about, and adjust for, overconfidence bias, and to avoid the base-rate fallacy. Presumably Bayesian Investor already knows that most people who thought they could beat the market were wrong, and thus took this into account when forming their belief that the strategy can beat the market.
And it’s not necessarily the case that Bayesian Investor’s strategy is worth doing for everyone and that people just don’t do it because they’re stupid. The strategy carries more risk than average strategies, and this alone is possibly a good enough reason for most people to avoid it. Effective altruists, however, should probably be less risk averse and thus the strategy is more likely to be useful for them.
Also, we’ve been saying most people who think they can beat the market are wrong, but on reflection I’m not sure that’s true. My understanding is that using leverage can, in expectation, result in you beat the market, and I suspect this is well know among those knowledgeable about investing. People just avoid doing it because it’s very risky.
I doubt that following my advice would be riskier than the S&P 500 - the low volatility funds reduce the risk in important ways (mainly by moving less in bear markets) that roughly offset the features which increase risk.
It’s rational for most people to ignore my advice, because there’s lots of other (somewhat conflicting) advice out there that sounds equally plausible to most people.
I’ve got lots of evidence about my abilities (I started investing as a hobby in 1980, and it’s been my main source of income for 20 years). But I don’t have an easy way to provide much evidence of my abilities in a single blog post.
What sort of other advice is out there that’s somewhat conflicting but equally plausible? The only one I can think of is that you should basically just stick your money in whatever diversified index funds have the lowest feeds. But even if this advice is just as plausible as your advice, your advice still seems worth taking. This is because if you’re wrong and I follow your strategy anyways, pretty much the only cost I’m bearing is decreasing my returns by only a small amount due to increased management fees. But if you’re right and I don’t follow your strategy, I’d miss out on a much less small amount of returns.
Here are a few examples of strategies that look (or looked) equally plausible, from the usually thoughtful blog of my fellow LessWronger Colby Davis .
This blog post recommends: - emerging markets, which overlaps a fair amount with my advice - put-writing, which sounds reasonable to me, but he managed to pick a bad time to advocate it - preferred stock, which looks appropriate today for more risk-averse investors, but which looked overpriced when I wrote my post.
This post describes one of his failures. Buying XIV was almost a great idea. It was a lot like shorting VXX, and shorting VXX is in fact a good idea for experts who are cautious enough not to short too much (alas, the right amount of caution is harder to know than most people expect). I expect the rewards in this area to go only to those who accept hard-to-evaluate risks.
This post has some strategies that require more frequent trading. I suspect they’re good, but I haven’t given them enough thought to be confident.
Yes. Rationalists are likely to know about, and adjust for, overconfidence bias, and to avoid the base-rate fallacy. Presumably Bayesian Investor already knows that most people who thought they could beat the market were wrong, and thus took this into account when forming their belief that the strategy can beat the market.
And it’s not necessarily the case that Bayesian Investor’s strategy is worth doing for everyone and that people just don’t do it because they’re stupid. The strategy carries more risk than average strategies, and this alone is possibly a good enough reason for most people to avoid it. Effective altruists, however, should probably be less risk averse and thus the strategy is more likely to be useful for them.
Also, we’ve been saying most people who think they can beat the market are wrong, but on reflection I’m not sure that’s true. My understanding is that using leverage can, in expectation, result in you beat the market, and I suspect this is well know among those knowledgeable about investing. People just avoid doing it because it’s very risky.
Hi, I’m Bayesian Investor.
I doubt that following my advice would be riskier than the S&P 500 - the low volatility funds reduce the risk in important ways (mainly by moving less in bear markets) that roughly offset the features which increase risk.
It’s rational for most people to ignore my advice, because there’s lots of other (somewhat conflicting) advice out there that sounds equally plausible to most people.
I’ve got lots of evidence about my abilities (I started investing as a hobby in 1980, and it’s been my main source of income for 20 years). But I don’t have an easy way to provide much evidence of my abilities in a single blog post.
What sort of other advice is out there that’s somewhat conflicting but equally plausible? The only one I can think of is that you should basically just stick your money in whatever diversified index funds have the lowest feeds. But even if this advice is just as plausible as your advice, your advice still seems worth taking. This is because if you’re wrong and I follow your strategy anyways, pretty much the only cost I’m bearing is decreasing my returns by only a small amount due to increased management fees. But if you’re right and I don’t follow your strategy, I’d miss out on a much less small amount of returns.
Here are a few examples of strategies that look (or looked) equally plausible, from the usually thoughtful blog of my fellow LessWronger Colby Davis .
This blog post recommends:
- emerging markets, which overlaps a fair amount with my advice
- put-writing, which sounds reasonable to me, but he managed to pick a bad time to advocate it
- preferred stock, which looks appropriate today for more risk-averse investors, but which looked overpriced when I wrote my post.
This post describes one of his failures. Buying XIV was almost a great idea. It was a lot like shorting VXX, and shorting VXX is in fact a good idea for experts who are cautious enough not to short too much (alas, the right amount of caution is harder to know than most people expect). I expect the rewards in this area to go only to those who accept hard-to-evaluate risks.
This post has some strategies that require more frequent trading. I suspect they’re good, but I haven’t given them enough thought to be confident.