In this Marginal Revolution post ‘The Buying Slow but Selling Fast Bias‘ by Alex Tabarrok, a long quoted wisdom sentence of stockbrokers is proven wrong. ‘Buy Slow, Sell Fast’ has been proven by data scientists to not be the best strategy: it would rather be ‘Buy Slow, Sell Slow’.
According to the research quoted in the post, buying slow and deliberately is not a problem. It is rather on the selling side that selling fast is not optimal. According to the research article, “We use a unique data set to show that financial market experts – institutional investors with portfolios averaging $573 million – exhibit costly, systematic biases. A striking finding emerges: while investors display clear skill in buying, their selling decisions underperform substantially – even relative to strategies involving no skill such as randomly selling existing positions – in terms of both benchmark-adjusted and risk-adjusted returns. We present evidence consistent with limited attention as a key driver of this discrepancy, with investors devoting more attentional resources to buy decisions than sell decisions.”
Coming back to the thinking fast and slow approach now familiar thanks to Daniel Kahneman, this tends to demonstrate that in most cases, a slow and reflective approach is better than a fast, reactive approach – and that it shows even in the testosterone-laden world of financial trading!
Even in stressful situations, it pays off to think slow or think twice before taking a decision!
