- momentum is attributed to under reaction to good news
- value investing is attributed to overreaction to bad news
On fund managers
- fear losing their jobs
- are more willing to be wrong with everyone else than being potentially right alone
- will not be able to hold a strategy that shows consistent losses for a few quarters for a outsized win a year later
- Interest between fund managers and investors might not be aligned
wants to manage ever larger funds to increase management fee
- large fund sizes prevents them from entering positions where only small funds can be deployed to obtain outsized returns
On the use of leverage
- The market can stay irrational longer than you can stay liquid