Bruce Greenwald: How Smart Investors Can Take Advantage Of Overconfident Investors – Which Is Most Of Us!

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We’ve just been watching Bruce Greenwald’s 2014 presentation at the International Post Keynesian Conference in which he illustrates how smart investors can take advantage of overconfident investors, which is most of us, saying:

Q3 hedge fund letters, conference, scoops etc

Seth Klarman's Presentation To Bruce Greenwald's 2010 CBS Class
Screenshot via Youtube

Human beings are constituted and cannot stop themselves from believing they know what they know with a vastly higher degree of certainty than is warranted.

In the debate on ‘weapons of mass destruction’ in Iraq nobody said, “There are weapons of mass destruction in Iraq with probability sixty percent or probability forty percent”… but that was the reality.

In advance nobody knew. They all decided either that there were for certain or there weren’t. When they apply that to stocks they decide the good stocks are good stocks for certain, and the bad stocks are bad stocks for certain… and nothing is certain!

In a situation of radical uncertainty people impose certainty on that situation, and you can see how that’s going to amplify the over-valuation to the glamour stocks and amplify the under-valuation of the ‘ugly’ stocks.

The other thing you ought to know is that people don’t learn! People learn a little but they don’t learn much!

You can watch the full presentation here:

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.