FROM BEHAVIORAL FINANCE TO ECCLESIASTES FINANCE: THE PAIN OF GAIN AND THE GLORY OF AN INVESTMENT LOSS

Abstract

Academic and practitioner’s literature has a plethora of evidence that active investment management is futile economically and underperforming financially, - more preponderant for large, blue chips. For smaller capitalization companies, purchased at discount there is an attractive, sustainable return promise, a long-term outperformance. We introduce a terminology that encapsulates this capitulation against this apparently overwhelming forces of tangible underperformance of active investment, inefficient asset allocation and high risk - low return portfolios, the era of Ecclesiastes Finance. Investors loathe to make decisions for fear of loss and discount all negative subtle announcement of the fragility of our gains and futility of our investment arrogance. And ignoring them can lead investors to make less fortunate financial decisions that can affect portfolio for decades. Investing with an Ecclesiastes attitude - the fragility of human condition in context of financial affairs - temporary gains and losses are less significant when framed in a larger perspective.

Keywords

• Advances on behavioral finance. Psychology
• of financial loss
• biases
• market efficiency
• gain and loss on investments