Richard Thaler on small cap stock investing

We are mainly invested in small caps.  This is not because we believe small companies to perform better than large corporations.  Rather, it is because we believe that active management has a better chance of success with small caps. 

This has to do with the simple rules of economics: There is less competition in the small caps segment.  Every asset manager around the world has an opinion on Apple or Google.  But if we take a closer look at a small, boring company that makes ball bearings in Iowa, there might be two analysts tracking the stock.  Hence, the market is much more likely to be mispricing this company.

~ Richard Thaler, "'Everyone thinks they are a particularly clever investor'," The Market, July 26, 2021

Richard Thaler on the retail investing boom

Part of what is going on right now is what I call the "bored market theory."  Especially at the beginning of the pandemic, there was almost nothing to do because of the lockdown measures.  There wasn't even any sports on TV because all games were canceled.  So there was nothing to bet on, which is why a lot of people started investing in stocks. 

An important development in this regard preceded the pandemic, at least in the US. It had to do with something that shouldn't really matter in a rational world: free trading...  People like it when something is free.  The combination of free trading and boredom has rekindled interest in investing, especially at the level of individual stocks.  In contrast, a mutual fund or - even worse - an index fund is dead boring.  The entertainment value is practically zero.

~ Richard Thaler, "'Everyone thinks they are a particularly clever investor'," The Market, July 26, 2021