Episode 75: Behavioural Finance for Equity Investors

Simon Russell on biases, selling discipline and corporate culture

In this episode of the [i3] Podcast, we speak with Simon Russell, Founder and Director of Behavioural Finance Australia, about his new book: ‘Behavioural Finance: A Guide for Listed Equities Teams’. We talk about how institutional investors are not immune to biases, even if they are aware of them. We discuss the application of behavioural finance to selling discipline and the relationship between intelligence and these biases. Enjoy the Show!

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Overview of Podcast with Simon Russell:

01:00 How this the new book come about?
04:00 Biases are not just the domain of retail investors
04:50 Regression to the mean
07:00 Retail investors usually don’t have their own earnings forecast models and so are not susceptible to biases around regression to the mean in that context
08:00 Awareness of biases is rarely sufficient, but it is a good starting point
11:30 Issues around selling decisions
13:00 There is a bias towards seeing sell decisions as the result of an investment mistake
15:00 On overconfidence and uncertainty; we actually know much less than we think we do
19:00 Biases are not always the main culprit of poor decisions. Often it is just about noise.
20:00 Precommitment strategies in case of losses
25:00 Confirmation biases; they are hard to deal with because they are subconscious.
31:00 Often we are told to take the emotion out of investment decisions, but Antonio Damasio shows in his book ‘‘Descartes’ Error that without emotions people are completely indecisive
32:00 Can we ever rely on gut instinct?
35:00 Can fostering a certain corporate culture mitigate the worst effects of behavioural biases, for example Ray Dalio and his philosophy of radical transparency? Yes, culture is important.
40:00 IQ and behavioural biases: can we outsmart them?
42:00 Cognitive reflective test
44:00 Checklists can come in handy. They are not there to teach you how to do things, but to remind you of things you might forget.
45:00 Next book might be on unlisted asset investors

Check out Simon Russell’s new book here: ‘Behavioural Finance: A Guide for Listed Equities Teams

Simon Russell will discuss his new book and present some of the findings of his research at the [i3] Luncheon on 3 November in Sydney. For more information, please see here.


[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe. The [i3] podcast is available on iTunesGoogle PodcastSpotifyAmazon MusicStitcher or your favourite podcast platform.