Tim Brooks is a fund manager at Liberty Financial Advisers' clients and arranges a presentation for his clients at which the guest presenter is Stephen Davis, an economist at the local university who frequently provides economic commentary for national media outlets. During his presentation, Davis states that it is likely the United States will enter a recession next year. He recommends that the clients shift their assets into investment grade bonds and noncyclical stocks. . He states that he has been successful in predicting recessions over the past 15 years and is certain of his forecasts. He states further that the only time he has been wrong in predicting the business cycle is when Congress unexpectedly increased spending beyond that expected. He states that if that had not happened, his prediction of a mild recession would have been correct, instead of the mild expansion that actually occurred. Later that evening at dinner, Brooks and Davis discuss the day's events. Commenting on investment strategies, Davis states that he focuses on growth stocks with 6-quarter earnings growth and monitors his portfolio on a quarterly basis. Davis also states that when the short-term moving average rises above the long-term moving average, this signals an opportune time to trade.  Name any two possible behavioural biases that could be argued to describe Davis’ approach to investing.

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter5: Bond, Bond Valuation, And Interest Rates
Section: Chapter Questions
Problem 1mM
icon
Related questions
Question

Tim Brooks is a fund manager at Liberty Financial Advisers' clients and arranges a presentation for his clients at which the guest presenter is Stephen Davis, an economist at the local university who frequently provides economic commentary for national media outlets. During his presentation, Davis states that it is likely the United States will enter a recession next year. He recommends that the clients shift their assets into investment grade bonds and noncyclical stocks. . He states that he has been successful in predicting recessions over the past 15 years and is certain of his forecasts. He states further that the only time he has been wrong in predicting the business cycle is when Congress unexpectedly increased spending beyond that expected. He states that if that had not happened, his prediction of a mild recession would have been correct, instead of the mild expansion that actually occurred. Later that evening at dinner, Brooks and Davis discuss the day's events. Commenting on investment strategies, Davis states that he focuses on growth stocks with 6-quarter earnings growth and monitors his portfolio on a quarterly basis. Davis also states that when the short-term moving average rises above the long-term moving average, this signals an opportune time to trade. 

Name any two possible behavioural biases that could be argued to describe Davis’ approach to investing.                                                                                                                             

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Biases
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Essentials of Business Analytics (MindTap Course …
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
SWFT Individual Income Taxes
SWFT Individual Income Taxes
Accounting
ISBN:
9780357391365
Author:
YOUNG
Publisher:
Cengage