The Madness of Markets (Alex Edmans) | Rational Reminder 431

Meet with PWL Capital — https://pwlcapital.com/ PWL Team — https://pwlcapital.com/our-team/ Avoid Online Scams — https://pwlcapital.com/stay-safe-online/ Ben Felix or any PWL employee will never reach out to you on social media platforms or WhatsApp to give financial advice. These are scammers trying to commit fraud. In this episode, we welcome back Alex Edmans, Professor of Finance at London Business School and author of Grow the Pie, May Contain Lies, and The Madness of Markets. Drawing on academic research and real-world market examples, Alex explores how emotions, social influence, and psychological biases shape investor behavior—and why even apparently irrational markets can be difficult to beat. We examine how a country’s stock market can react to a football loss, why investors overreact to exciting stories and underreact to less visible information, and how identical assets can trade at different prices. Alex also unpacks the evidence behind reversal, value, and momentum strategies, the challenges of exploiting market anomalies, and why skewed stock returns make diversification so important. The conversation ultimately returns to a fundamental investing question: even if you can identify market inefficiencies, do you have the edge, patience, and cost advantage needed to benefit from them? The Madness of Markets: Why Smart Investors Make Crazy Decisions and How to Exploit Them — https://www.amazon.com/Madness-Markets-Investors-Decisions-Exploit/dp/B0GK117D54 Timestamps: 0:00:00 Episode Preview 0:00:20 Intro 0:01:50 How a football game’s outcome can affect a nation’s stock market 0:03:03 Other unlikely things that seem to move markets 0:03:54 How we know it's an actual effect, rather than a statistical anomaly 0:06:55 What the wisdom of crowds suggests about market prices 0:10:04 The types of errors that investors make 0:12:35 Examples of overreactions to negative information 0:13:24 Whether or not investors underreact 0:15:31 Whether or not investors react incorrectly to information 0:16:57 What drives investors' swings from exuberance to panic 0:17:33 How value investing exploits the same overreactions 0:22:05 Why reversal and value work better together 0:22:59 Why these strategies stop working once they're published 0:27:29 Why out of sample performance…