Tag: foolish investors

Who are the deluded investors? Probably you and me!

Deluded investors are foolish market participants who are uninformed but transact in financial markets with the delusion that they are informed. They would trade actively in an attempt to outperform when a security is mispriced according to their analysis. Deluded participants are, however, wrong in believing that they know the fair value of the security.

Read More

Irrational investors trust in greater fools

We have classified market participants into five types. In this post we describe the irrational investors or traders in more detail. As explained before, the irrational traders are the market participants who are informed, but still transact although they understand that they are buying securities above fair value or are selling securities below fair value. Even so, they believe that their strategy will lead to outperformance.

Read More

Five types of investors: Which one are you?

In previous posts we considered informed and uninformed market participants. We then introduced another type of participant which we called the foolish investor. In an attempt to outperform the market foolish market participants actively trade to their own detriment at inefficient prices. Here we refine our definition of foolish market participants by dividing them into three groups: the gamblers, the deluded traders and the irrational traders. Each group is foolish in a different way.

Read More