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« The Psychology of Risk | Main | Another Gift from the Financial Accounting Standards Board »

April 07, 2008


Engineered Stock Investing

From my experience the best investors are mature in their thinking and have realistic investment expecations. They measure their personal investment horizon in months and years - rather than weeks or days.


Jeffrey, interesting post. Would you be interested in syndicating your content on the home page of my site? It's an online community of finance professionals ( ). I could add an RSS feed that will allow me to promote your blog posts to my home page (when i think it will lead to a good discussion and/or is appropriate), but I wanted to make sure you were comfortable syndicating first. The syndicated post would have a link back to your original post. Thanks, Patrick (you can reach me at [email protected] if you have any questions)

Turley Muller

Terrific article. Great investing lessons can always be learned from psychology of sports betting.

On a similar note, I wanted to share a point from some research I read. I can't remember exactly who (pretty sure Thaler & DeBondt) studied tons of data on point spreads and actual outcomes for popular sports bets.

They found that the market was generally efficient, at least to the point where 10% juice (vig) must be offset on losses.

There was one exception they observed- College football games where a school with a huge fan base plays (at home +) a no-name school with a very small fan base. Such as Michigan or Tennessee vs. Ohio University or Wyoming or UTEP etc.

The logic is that teams having immense fan pride will bet heavily and drive the line way up where it's inefficiently priced. The opposing team doesn't have a fan base large enough to offset the big football programs. What results is gamblers betting on ego and pride and not rationality.

That's a pretty interesting finding, not a surprise though. We see it with stocks as well. Apple, Google, etc. is another that comes to mind. Short Interest had been very high last summer (and had been for years), yet the
stock surged and shorts folded, and have never really come back even though the stock still trades at a very high PE and has yet to demonstrate it can increase margins. I wrote an article awhile back about this inefficiency that may be of interest.

It may be weeks, months, years for sentiment to shift, just as you noted Jeff. The senior trader on the MBS desk where I worked always warned me "The market can remain irrational longer than you can remain solvent." The market's opinion is the only one that matters, since it moves prices, not me. Therefore, it's crucial to understand market sentiment and psychology rather then just attributing one's own opinion.

You have some great commentary on sentiment and psychology here, Jeff, and it's something that definitely needs to be included on Seeking Alpha.


Thanks, Bill!


Absolutely superb work, Jeff.

Just FYI, I made your analysis of the game and the TradeSports response my feature story of the day.



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