Risk - Happiness is Losing Less

One of the great ironies in the hedge fund industry is the propensity for many investors to favor relative returns over absolute returns.  This is particularly true among retail investors who, by and large, would prefer to lose money along with everyone else than to make less than everyone else.  What else could explain the complacency with which investors accept -40% market returns while crying foul at the hedge funds that “under perform” in a bull market.

Investors are supposed to be “rational” when it comes to accessing risk and making investment choices. At least that is what they teach finance students when they study the CAPITAL ASSET PRICING MODEL. Nothing could be further from the truth!

This entry was posted on 8. July 2009 at 02:32 and is filed under Investor Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.