“Most of academic finance is teaching that you can’t earn 40 percent a year without some risk of losing a lot of money,” says Mr. Sharpe, the former Stanford colleague of Mr. Scholes. “In some sense, what happened is nicely consistent with what we teach.”
Proponents of behavioral finance, especially those who manage money, recognize that beating the market is no snap, and they try to avoid being overconfident. Russell Fuller and Richard Thaler operate Fuller and Thaler
Asset Management. They manage a mutual fund, based on the De Bondt-Thaler effect, called Behavioral Value. It may sound paradoxical, but Fuller believes that markets are, in the main, efficient. He tells me that many of the De Bondt-Thaler losers are, in fact, properly priced, that “most should be losers.” What’s the lesson? Don’t think the streets are paved with gold, or at least Wall Street anyway.