Tuesday, October 15, 2013

Ignoring Opportunity Cost, Risk

The Risk of Ignoring Opportunity Cost - Forbes: "For complex reasons rooted deep in the way our brains evolved over millennia, we tend to be hard-wired to fear losses more than we enjoy the prospect of gain. (That’s the root of the Nobel-prize winning concept prospect theory.) And, by and large, investors tend to disbelieve bull markets as they run. Which is perverse! And yet, most readers will agree that investors tend to be bullish when they should be bearish, and the reverse. So if stocks rise something on the order of 72% of all calendar years, folks are just going to be naturally bearish more often than not—and they’re going to downplay—likely to their detriment—opportunity cost as a risk."

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