- ""People tend to buy the investments they wish they had bought last year," says Terrance Odean, a finance professor at the University of California at Berkeley. "Partly, people simply extrapolate the past trend. But also, people feel that the markets are more predictable than they really are."
If we were rational, we would grow leery as an investment rises in price, because we are now paying more for the same investment. Instead, however, we are drawn to hot stocks and hot mutual funds, because we assume that the future will look like the immediate past."
- "Rather than accepting that market conditions have changed, home sellers today are often fixated on the price they paid or the price they could have gotten at the market peak. Indeed, whether it is real estate or stocks, folks like to "get even, then get out."
This, of course, is partly about making money. But it is also about avoiding regret"
- "According to the Commerce Department's Bureau of Economic Analysis, the U.S. savings rate turned negative over the three months through June 2005 and it has remained that way ever since.
Partly, this reflects our struggle with self-control. Instead of rationally socking away money on a regular basis, we prefer to spend today and put off saving until tomorrow.
I suspect the negative savings rate, however, is also driven by our overconfidence"
As always Clements offers some good advice in a readable fashion.