Investors as irrational as ever

That idea plays out at least according to the Aptus Behavioral Momentum index. The index tracks the performance of the 25 largest U.S.-trades traded stocks, ranking them on a basis of momentum and investor behavior focusing on six-month performance relative to rolling 52-week highs. Essentially, it tracks market movements based on investors’ inclination to follow the “hot hand” and not a more rational, fundamentally driven portfolio.

The index falls in line with the work of the weekend’s winner of the Nobel Memorial Prize in Economic Sciences, Richard H. Thaler, who worked to quantify the impact of humanity’s draw to short-term gains over more rational, long-term benefits on financial markets. In what he calls the “nudge” theory, Mr. Thaler believes that most people make decisions based more on addressing segments of their lives rather than their lives as a whole. This, of course, spills over into the financial markets, where decisions are made by these irrational humans worldwide a million times a day, acting tactically instead of strategically.

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