Danny Kahneman, who passed away last week, was one of my intellectual heroes. Along with his close collaborator, Amos Tversky, who passed in 1996, he changed my thinking in profound ways, definitely for the better. In fact, we shared this with you before; in a previous letter we recommended a Michael Lewis book about them, “The Undoing Project: A Friendship That Changed Our Minds (2016).” 1
They were a remarkable pair of Israeli Psychologists who ended up impacting the field of economics in profound ways. Danny won the Nobel prize in economics for their work (Amos had passed by then).2
If I had to pick the single biggest lesson they left me with, it has to be self-doubt. After reading their work and the mountains of evidence they produced related to the way humans think, and the inherent flaws in our thinking, I was left with the never fully answered challenge – what do I really know, and how do I know it?
“The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence.”
― Charles Bukowski.
OK, maybe that is going a little too far, but it is funny and not too far from the mark in many cases.
The application to investing is obvious when you think about it, as we do almost obsessively. In most cases, the less you do, the better the outcome. The data can fool you; you think you see trends and patterns, and maybe this time is different. Chasing the hot stocks and sectors, being influenced by fear and greed, etc. We observe the mass of investors repeat the same errors.
Danny and Amos were two amazing people whose existence and contribution made our world a richer place.
The First Quarter was a good one
Source: Morningstar Direct. Data as of 03/31/2024.
Once more, the S&P 500 rose to record levels and outperformed the other broad equity indices. Bonds were down slightly as interest rates rose modestly. Inflation has remained higher than expected, and the market’s expectations for Fed Funds rate cuts dropped from six to maybe three. Let’s stand by for further updates.
Interestingly, value and small stocks surged in March while large growth stocks did not. Several of the Magnificent 7 stocks, especially Tesla and Apple, fell in Q1.3 Many analysts say that when the Fed eases and we are not having a recession, those stocks – small and value – that were left behind by Big Tech, historically outperform. We shall see if what looks like an important shift in March continues.
Meanwhile we know we don’t know what is coming next, so we stay invested and well-diversified.
1. Leonhardt, David. “From Michael Lewis, the Story of Two Friends Who Changed How We Think About the Way We Think.”
The New York Times, 6 Dec. 2016, https://www.nytimes.com/2016/12/06/books/review/michael-lewis-undoing-project.html.
Accessed 1 Apr. 2024.
2. Zweig, Jason. “The Psychologist Who Turned the Investing World on Its Head.” The Wall Street Journal, 29 Mar. 2024,
https://www.wsj.com/finance/investing/daniel-kahneman-behavioral-economics-270c9797. Accessed 1 Apr. 2024.
3. Singh, Hardika. “The Stock Market’s Magnificent Seven Is Now the Fab Four.” The Wall Street Journal, 1 Apr. 2024,
https://www.wsj.com/finance/stocks/the-stock-markets-magnificent-seven-is-now-the-fab-four-2dff87ac. Accessed 1 Apr. 2024.
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Index Descriptions
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S&P 500 Index (Large Cap U.S. Stocks): measures the performance of large capitalization U.S. Stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, NYSE MKT, and NASDAQ. The weightings make each company’s influence on the Index performance directly proportional to that company’s market value.
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Russell 2000 Index (Small Cap U.S. Stocks): An unmanaged index that measures the performance of the small-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index and includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. Russell Investment Group owns the Russell Index data, including all applicable trademarks and copyrights.
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MSCI EAFE Index (International Developed Stocks): The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
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MSCI Emerging Markets Index (Emerging Markets Stocks): is a Morgan Stanley Capital International Index that is designed to measure the performance of equity markets in 25 emerging countries around the world.
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Bloomberg Barclays US Aggregate Bond Index (Investment Grade U.S. Bonds): includes U.S. government, corporate, and mortgage-backed securities with maturities of at least one year.
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Bloomberg Barclays US Municipal Index 1-15 Yr Total Return (Int-Term Municipal Bonds): Index that measures the performance of USD-denominated long-term, tax-exempt bond market with maturities of 1-15 years, including state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds.