IA - Week 14

What is investment philosophy?

Your core beliefs and framework for making investment decisions

What does r > g mean conceptually?

Returns to capital grow faster than the overall economy

Why does the professor emphasize r > g?

Long-term investing favors owners of capital

What is the key idea behind true investing?

It depends on time risk uncertainty and expertise

Why is time considered the most important variable in investing?

Compounding and horizon dominate outcomes

Why is market timing considered risky?

Short-term movements are driven by randomness

What causes business cycles?

Credit conditions expectations and external shocks

Why does cheap credit expand the economy?

It encourages borrowing investment and spending

Why do expectations matter in cycles?

Confidence increases spending fear reduces it

Why is “when you buy” often more important than “what you buy”?

Entry timing affects long-term returns

What does “agreement on price and disagreement on value” mean?

Markets move because investors hold opposite beliefs

Why is valuation subjective?

It depends on assumptions expectations and time horizon

What is the Efficient Market Hypothesis EMH?

Prices reflect available information

What does EMH imply about beating the market?

It is very difficult to do consistently

What does behavioral finance argue?

Psychology and biases can move prices away from fundamentals

How do Fama and Shiller differ?

Fama emphasizes efficiency Shiller emphasizes behavior

What is the random walk hypothesis?

Price changes are unpredictable and independent

Why is random walk consistent with EMH?

New information arrives randomly

What is Brownian motion in finance?

A random continuous process underlying price changes

What does geometric Brownian motion add?

A long-term upward drift plus randomness

Which dominates in the short run drift or volatility?

Volatility

Which dominates in the long run drift or volatility?

Drift fundamentals and growth

Why is time horizon a risk management tool?

Risk declines relative to return over longer horizons

What is fundamental analysis?

Valuing assets based on economic fundamentals

What is technical analysis?

Studying price patterns and trends to predict movement

What do technical analysts believe about intrinsic value?

Price itself reflects truth through supply and demand