How has behavioural finance helped you catch “falling knives” (out of favour S&P stocks)?
While the hypothesis of an efficient market is widely embraced, it fails to explain some recurring investment anomalies that do exist. These anomalies can be explained by behavioural finance theories,
which concede that some other factors are at play (some irrational - some rational). As human
beings we tend to behave irrationally when we experience stress, fear, when we are emotionally charged etc. We also need to rationalise and hence tend to find comfort in known, recognised behaviour patterns such as following the rule of thumb; seek loss minimisation, move in herds etc.