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Fundamental Human Errors to Live By

In this video Dr. Andrew W. Lo Ph.D. offers these 6 fundamental theories to The Adaptive Markets Hypothesis

  1. Individuals Act In Self-Interest
  2. Individuals Make Mistakes
  3. Individuals Learn and Adapt
  4. Competition Drives Adaption and Innovation
  5. Natural Selection Shapes Market Ecology
  6. Evolution Determines Market Dynamics

Just as marketing techniques lose value as they become popular, so true are many investment strategies. Profit is a moving target.

Also in the speech: in up markets stocks shoot up on positive earnings announcements, but in down markets not so much. Why? Different parts of the brain and different emotions control the decision to trade depending on the market trend. On up markets analytic parts of our brain engage with our reward circuitry, but in down markets people are controlled more by fear and risk aversion.