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Friday, December 18, 2009

We Know We Should Index But We Can't Seem to Resist....

,,,the urge to look to gurus to tell us how to invest. And given the time of year we will be inundated with the "best moves to make for 2010". Interestingly Israel has been a center for research in behavioral finance led by nobel prize winner Daniel Kahneman.

But that doesn't prevent the "seeking alpha syndrome" from being alive and well there. Human nature seems the same around the world From Slate

The Myth of the "Typical" Investor

Who is Mrs. Cohen from Hadera, and should Israelis care where she puts her money?
By Daniel Gross
Posted Tuesday, Dec. 15, 2009, at 1:44 PM ET

EL AVIV, Israel—Amram Aharoni has a serious résumé, but he has the mien of a comedian. On Sunday at the Globes' Israel Business Conference, Aharoni, who teaches investment theory and finance at the Herzliya Interdisciplinary Center, ran through his many qualifications—degrees from Tel Aviv University, a doctorate in finance from New York University, many years of experience in the financial sector—before throwing up his hands. "I'm supposed to be a specialist in the capital markets, but I want to confess that many times I know nothing. How can I not foresee the future and any junior analyst can tell me what's going to happen?" In laying out the modern case against active asset management, Aharoni name-checked the efficient markets hypothesis, Nassim Nicholas Taleb's The Black Swan, and ran through a bunch of gems from the behavioralist playbook (like those surveys that show most people think they're above-average drivers). Aharoni assembled a series of analysts' quotes making foolish and wrong short-term market projections, and displayed a chart showing that out of a few dozen Israeli investment funds, only three beat their benchmark indices over eight years.

And then … he turned over the session to a panel of six Israeli economists and asset managers who offered opinions on what would happen next in the markets and where people should put their money.

The conference's schedule was full of boldface names, including Prime Minister Benjamin Netanyahu, technology entrepreneurs, and Israeli business leaders. But the name on everybody's lips in this session was someone I had never heard of: a Mrs. Cohen from Hadera—G'veret Cohen m'Hadera, in Hebrew. How would she react to the news? Where is she putting her money now? Given the knowledge that it's tough to beat the market, should she just invest in index funds? Is she buying bonds, or gold, or avoiding the dollar? And what should she be doing

She's a housewife, manager of her home's finances; she's skeptical, careful, conservative yet susceptible to advice and prone to fads, but ultimately influential to the direction and performance of the domestic capital markets.

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