International investment philosophy is
based on the principle that
devise successful strategies that
should provide positive expectations
invest the right amount of money to
increase wealth and to limit losses.
has been written about efficient
markets and modern portfolio
theory developed by Harry Markovitz in
the 50s. Eugene Fama's random
walk theory even asserts that price
movements will not follow any pattern
or trends and that past price
movements cannot be used to predict
future price movements.
Traditional financial market theories
(CAPM) are based on the assumption
that the market participants
Markets are believed to be efficient
and as such at any given time, security
prices reflect all information.
In other words, expecting a profit in
the buying or selling of securities is
a matter of chance not skill.
However, investors like Warren Buffett
are not rational. Investors tend to be
over-confident or under-confident
depending on the circumstances, and tend
to over or under-react to events.
Behavioral finance, developed in the
70s, inquires into the irrational
behavior of investors and attempts to
structure the observations to formulate
explanatory theories and to postulate
management (seeking alpha) is believing
that there could be discrepancies in,
(price) expectations and/or
investors’ risk preferences
and acting on it.