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Established in 1920
I. Introduction
I. Introduction
Yearly and Geometric Mean Returns to Value and Growth Strategies with Refined Definitions, 1969-2001
Yearly and Geometric Mean Returns to Value and Growth Strategies with Refined Definitions
in EAFE Markets, 1989-2001
III. Cognitive Biases and Agency Effects Lie at the Root of the Spread
Behavioral Errors
- Prospect theory: Kahneman and Tversky
- Thaler’s “Endowment Effect”
- “Availability Effect”
- Mental accounting: Frequency of valuation
Tweedy, Browne Company LLC
Established in 1920
Source: The Road to Wealth: Long Term Investment in Stocks , Tweedy, Browne Company, 1993.
Tweedy, Browne Company LLC
Established in 1920
III. Cognitive Biases and Agency Effects Lie at the Root of the Spread
Behavioral Errors
- Prospect theory: Kahneman and Tweedy
- Thaler’s “Endowment Effect”
- “Availability Effect”
- Mental accounting: Frequency of valuation
Agency Effects
- Pre-occupation with short term performance, near term volatility,
benchmarking and tracking error
- Herding, bunching, benchmark hugging and bias for glamour
Tweedy, Browne Company LLC
Established in 1920
70%
6 5%
42% 42%
4 1%
40%
40%
3 5%
32%
3 1% 3 1%
29%
30% 2 7% 2 7%
2 5%
20%
10%
0%
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995
Year
Source of dat a: A-N Research Corp. (Formerly t he research depart ment of Abel Noser Corp.) and I/B/E/S, 1973-1996; Contrarian Investm ent Strategies: The
Next Generation, by David Dreman, 1998.
Tweedy, Browne Company LLC
Established in 1920
1959 16.4%
1979 63.3%
1998 83%
FMC Corporation
Tweedy, Browne Company LLC
Established in 1920
Annualized Returns
Periods Ending December 31, 2007
FMC Corporation
Grinnell College
Tweedy, Browne Company LLC
Established in 1920
Grinnell College
Endowment Fund Performance
Periods Ending June 30, 2006
Avoiding Irrationality …
9Diversify