1.Numereous studies have shown that low P/E stocks tend to outperform the market than high P/E stocks.

 - James P. O'Shaughnessy

2. An interesting debate regarding value investing evolved from T.J. Peters and R.H. Waterman's "In Serach of Excellence: Lessons from America's Best-Run Corporations" (1982). They formed a list of "Excellent " companies based on a number of factors including asset growth, book value growth, and return on assets. Following up on their work, Michelle Clayman studied the performance of the "excellent" firms  and another group she termed "unexcellent" (by going "in search of disaster") and found that the characteristics of the excellent companies quickly reverted to the mean in the years following their excellent performance. The unexcellent companies also reverted to the mean and showed substantial improvement. The stocks of the unexcellent firms significantly outperformed the excellent companies over the years that followed.

3. Numerous studies have concluded that high yielding stocks tend to outperform.

4. Price changes tend to persist after initial announcements. Stocks with positive surprises tend to drift upward, those with negative surprises tend to drift downward.

Robert Haugen in his book The New Finance: The Case Against Efficient Markets

5. There is evidence, and try as they might, the accountants and financial people can't make it go away, that when you get and earnings surprise, somehow or the other the market doesn't seem to absorb it all right away.

 - William F. Sharpe in Investment Gurus by Peter J. Tanous

6. The central proposition of charting is absolutely false, and investors who follow its precepts will accomplish nothing but increasing substantially the brokerage charges they pay. There has been a remarkable uniformity in the conclusions of studies done on all forms of technical analysis. Not one has consistently outperformed the placebo of a buy-and-hold strategy.

 - Burton Malkiel and Mark Hulbert.

7. The only thing we know for certain about technical analysis is that it's possible to make a living publishing a newsletter on the subject.

Martin S. Fridson, Investment Illusions

8. An example from my research is "the law of small numbers". An example you may be familiar with is the gambler's fallacy with coin flips. So you take any coin in your pocket which is fair, a 50-50 coin: people think if it comes up three heads in row, it's more likely to come up tails the next time. Their notion is that even for a small number of coin flips, you expect to see approximately 50-50 heads and tails. Well, in fact, if it comes up three heads in a row, the chances that it comes up heads the next time is 50%. In experiment after experiment after experiment, some people get this right, and many people get this wrong. There's a systematic bias that people want to see the overall average show up even in small samples.

 - Matthew Rabin

9. Economists have assumed a time-consistent discounting, that to whatever we degree we care more about today then tomorrow, we care that same amount more about 7 days from now than about 8 days from now. Every single study done by psychologists, studying humans, rats, pigeons, always shows this other kind of discounting, this hyperbolic discounting which captures time-inconsistent preferences, the fact that we care much more about today than tomorrow, that that's a bigger difference to us than how much more we care about 7 days from now vs. 8 days from now.

 - Matthew Rabin.

10. A well-established phenomenon called the equity premium puzzle is why people invest so little in stocks relative to bonds. Current models don't explain why people are this risk-averse, why they invest in bonds that are "safer" but guaranteed not to earn them much interest. People are too risk-averse in their long-run investments by any reasonable measure of what their goals are. Benartzi and Thaler exlplain this as people not being able to stand the sensation of picking up the newspaper and having lost money from one year to the next. They found that because people are looking at their investments every six months instead of over the 30 year horizon, which is the only horizon they care about in terms of using this money, the sensation of having lost $10,000 is an ugly one that most people don't like and so they try to avoid that by putting less money into the risky asset and more in to the safe asset.

 - Matthew Rabin 

11. Workers save more when they are automatically enrolled in savings programs than when they have to choose to participate by, say, returning a form. Standard theory holds that workers would make the most rational decision regardless.

12. Thaler has found that the number of options on a 401 (k) menu can affect the employee's selections. Those with a choice of a stock fund and bond fund tend to invest half in each. Those with a choice of three stock funds and one bond fund are likely to sprinkle an equal amount of their savings in each, and thus put 75 percent of the total in stocks. Such behavior illustrates "framing" - decisions being affected by how choices are positioned.

13. Most insisted that they would not accept a 1-in-1,000 mortality risk for anything less than a million dollars. Paradoxically, the same friends said they would not be willing to forego any income to eliminate the risks that their jobs already entailed. Rather than rationally pricing mortality, people had a cognitive disconnect, they put a premium on new risks and casually discounted familiar ones.

14. People are more concerned with changes in wealth than with their absolute level - a violation of standard theory that explained many of Thaler's anomalies. Moreover, most people are "loss averse", meaning they experience more pain from losses than pleasure from gains. This explains why investors hate to sell losers.

15. Thaler's most original contribution was "mental accounting" - an extension of Kahneman and Tversky's "framing" principle. "Framing" says the positioning of choices prejudices the outcome. "Mental accounting" says people draw their own frames, and that where they place the boundaries subtly affects the decisions. For instance, a poker player who accounts for each day separately may become bolder at the end of a winning night because he feels he is playing with "house money". If he accounted for each hand separately, he would play the first and last hands the same.

16. Most people sort their money into accounts like "current income" and "savings" and justify different expenditures from each. They will gladly blow their winnings from the office football pool, a "frivolous" account, even while scrupulously salting away from every penny of their salaries.

17. People assign much higher probability to the truth of their opinions that is warranted. It's one of the reasons people trade so much in the market, generally with bad results. Another example is people exaggerate their confidence in their plans - something we call the planning fallacy....The existence of the plan tends to induce overconfidence.

18. The error that Bernoulli made, a psychological error - a big one, actually - was he decided to look at the outcome of the gamble and the utility of the outcome. But the utility of what? He describes it as the utility of the state of wealth that would ensue, depending on what happened. Now that turns out not to be the way that people think. People don't think in terms of wealth....When you are thinking about a financial decision, you are thinking in terms of gains and losses. It's a very basic departure.

19. It turns out it affects their decision-making in very major ways. If you think in terms of major losses, because losses loom much larger than gains - that's a very well established finding - you tend to be very risk-averse. When you think in terms of wealth, you tend to be much less risk-averse. I will give you an example: Suppose someone offered you a gamble on the toss of a coin. If you guess right, you win $15,000; if you guess wrong, you lose $10,000. Practically no one wants it. Then I ask people to think of their wealth, and now think of two states of the world. In one you own [your current assets] minus $10,000 and in the other you own [your current assets] plus $15,000. Which state of the world do you like better? Everybody likes the second one. So when you think in terms of wealth - the final state - you tend to be much closer to risk-neutral than when you think of gains and losses. That's the fundamental way prospect theory departs from utility theory.

20. There is evidence, and try as they might, the accountants and financial people can't make it go away, that when you get an earnings surprise, somehow or the other the market doesn't seem to absorb it all right away.

21. The traders' aphorism "buy on the rumor and sell on the news" (BRSN) describes a strategy for exploiting a frequently observed financial market price pattern. This pattern (BRSN) is characterized by security prices rising prior to and falling subsequently to positively anticipated events. Security prices are, paradoxically, often observed to decline following an event outcome that is equal-to or better-than "expectations".

22. "There is now substantial evidence that financial markets do not react to information exactly as suggested by the efficient market hypothesis. Consequently, a numbers of papers have asked the question, " how can this be explained?" Initially, one of the main explanations was that exogenous institutional imperfections, such as transaction costs, are the cause. This type of explanation is now being replaced by behavioural ones, which focus on exactly how agents process information. The idea in this paper is that agents respond not only to their own private information, but also to the information which they infer other agents have. The inference is made on the basis if the actions which the other agents are seen to take."

Skerratt (2000)

23. "Barn door closing, in the horse protection sense, refers to undertaking behavior today that would have been profitable yesterday. Investors seek to reproduce actual or imagined past investment successes by investing today in the same way."[...]". In the first row of the table, we observe an economically large and statistically significant positive coefficient, [beta]₅ in the base regression, on equity returns, which is consistent with barn door closing."

24. "Prospect theory and rank-dependent utility are nowadays the most prominent descriptive models of decision making under risk. Both theories rely on the notion that probabilities are transformed into decision weights. This paper proposes two particular hypotheses of decision weights which underweight all probabilities less than unity. Interestingly, these two hypotheses lead to special cases of a class of models which have been developed to accommodate the certainty effect and boundary effects but have not been related to transformed probabilities before."

25. "...the return premia on small capitalization and high book-to-market stocks does not arise because of the comovements of these stocks with pervasive factors. It is the characteristics rather than the covariance structure of returns that appear to explain the cross-sectional variation in stock returns."
Daniel and Titman (1997)

26. "The role of news events in affecting the market seems often to be delayed, and to have the effect of setting in motion a sequence of public attentions. These attentions may be to images or stories, or to facts that may already have been well known. The facts may previously have been ignored or judged inconsequential, but they can attain newfound prominence in the wake of breaking news. These sequences of attention may be called cascades, as one focus of attention leads to attention to another, and then another."
SHILLER, Robert J., Irrational Exuberance, 2000.

27. "...speculative bubble: a situation in which temporarily high prices are sustained largely by investors' enthusiasm rather than by consistent estimation of real value."
SHILLER, Robert J., Irrational Exuberance, 2000.

28. [Shleifer]p112 "The underreaction evidence shows that security prices underreact to news such as earnings announcements. If the news is good, prices keep trending up after the initial positive reaction; if the news is bad, prices keep trending down after the initial negative reaction."

29. ZECKHAUSER, Richard, Jayendu PATEL and Darryll HENDRICKS, Nonrational Actors and Financial Market Behavior, 1991. [about 32]
"Barn door closing, in the horse protection sense, refers to undertaking behavior today that would have been profitable yesterday. Investors seek to reproduce actual or imagined past investment successes by investing today in the same way." [...]"In the first row of the table, we observe an economically large and statistically significant positive coefficient, [beta]₅ in the base regression, on equity returns, which is consistent with barn door closing."

30. Shiller](herd behaviour)"The behavior, although individually rational, produces group behavior that is, in a well-defined sense, irrational. This herdlike behavior is said to arise from an /information cascade/."

31. [KaTv00] "The rational theory of choice assumes description invariance: equivalent formulations of a choice problem should give rise to the same preference order (Arrow, 1982). Contrary to this assumption, there is much evidence that variations in the framing of options (e.g., in terms of gains or losses) yield systematically different preferences (Tversky and Kahneman, 1986)."

32. Almost all market orders are matched with limit orders. Hence, the record of transaction prices follows closely the record of limit orders. But some 84 per cent of limit orders on the books of specialists are typically at even eighths. Therefore, we might naively expect a certain amount of clustering at round numbers, which are, of course, numbers ending in an even number of eighths.

 - VICTOR NIEDERHOFFER

33. "Cognitive dissonance is the mental conflict that people experience when they are presented with evidence that their beliefs or assumptions may be wrong."

MONTIER, James, Behavioural Finance: Insights into Irrational Minds and Markets.

34. "This is the tendency to cling tenaciously to a view or a forecast. Once a position has been stated most people find it very hard to move away from that view. When movement does occur it is only very slow (this creates under-reaction to events)

 - MONTIER, James, Behavioural Finance: Insights into Irrational Minds and Markets.

35. Optimism (and wishful thinking). We all tend to be optimistic about the future. On the first day of my MBA class on decision-making at the University of Chicago, every single student expects to get an above-the -median grade, yet half are inevitably disappointed. The optimism will induce me to predict that economics will become more likely I want it to be.

Richard H. Thaler - From Homo Economicus to Homo Sapiens.

36. "Shefrin and Statman (1985) predicted that because people dislike incurring losses much more than they enjoy making gains, and people are willing to gamble in the domain of losses, investors quill hold onto stocks that have lost value (relative to the reference point of their purchase) and will be eager to sell stocks that have risen in value. They called this the disposition effect."

MONTIER, James, Behavioural Finance: Insights into Irrational Minds and Markets

37. "....applied Kahneman and Tversky's notion of framing to the realization of losses. We called this phenomenon the disposition effect, arguing that investors are predisposed to holding losers too long and selling winners too early."

SHERIN, Hersh, Beyond Greed and Fear : Understanding Behavioral Finance and the Psychology of Investing.

38. The disposition effect is the tendency to sell assets that have gained value ("winners") and keep assets that have lost value ("losers"). Disposition effect can be explained by the two features of prospect theory; the idea that people value gains and losses relative to a reference point (the initial price of shares), and the tendency to seek risk when faced with possible losses, and avoid risk when a certain gain is possible. 

39. Do investors pay attention to long-term fundamentals? We consider the case of demographic information. Large cohorts, such as baby boom, generate forecastable positive demand changes over time to the toys, bicycle, beer, life insurance, and nursing home sectors, to name a few. These demand changes are predictable once a specific cohort is born. In this paper, we use lagged consumption and demographic data to forecast future consumption demand growth induced by changes in age structure. We find that these demand forecasts predict profitability by industry. Moreover, forecasted demand growth 5 to 10 years into the future predicts one-year returns by industry. An additional one percentage point of annualized demand growth due to demographics induces a 4 to 6 percentage point increase of annual abnormal industry stock returns. The forecastability is stronger for concentrated industries and for the more recent time period. Forecasted consumption growth 0-5 years into the future instead does not predict stock returns. The results are consistent with short-sightedness with respect to long-run information. STEFANO DELLA VIGNA AND JOSHUA POLLET in ATTENTION, DEMOGRAPHICS, AND THE STOCK MARKET.