Why Smart Investors Still Make Bad Decisions: Alex Edmans

Rational investors are supposed to price assets correctly. But investors are people, and people are irrational – which is exactly why bubbles form, herds stampede, and markets overreact to information that doesn’t deserve it.

Alex Edmans is Professor of Finance at London Business School. He started on the trading floor at Morgan Stanley before completing a PhD at MIT as a Fulbright Scholar, and has since become one of finance’s most prominent public communicators through bestselling books, free public lectures, and his mission to prove that finance doesn’t have to be dumbed down to be understood. He’s the author of Grow the Pie and May Contain Lies, and his new book, The Madness of Markets, is out this September.

He joins Carl to unpack:
Why AI valuations don’t look as extreme as the dot-com bubble on paper, and the hidden risk sitting in tech earnings anyway
The overreaction and herd behaviour that push otherwise rational investors into the same mistakes, from meme stocks to football fandom
Why some published investing strategies keep working even after everyone can read about them
The case against ESG as a single label, and why he thinks it has become “too much like a religion”
The unconventional investor Edmans rates above Warren Buffett, and the one lasting edge retail investors have over the professionals

CHAPTERS

0:00 Introduction
0:28 From the Morgan Stanley trading floor to a PhD at MIT
3:39 Why research needs to escape the ivory tower
7:15 Overreaction: the most powerful bias in investing
10:29 Herd behaviour, Reddit, and the Solomon Asch experiment
15:10 Is AI the next dot-com bubble?
18:32 Why your investment objectives change everything
20:17 Can you still profit from a strategy everyone knows about?
23:33 Prediction markets: information or noise?
27:35 Why ESG has become too much like a religion
35:19 Two tips for building a lasting investing edge
38:50 Lightning round: first, best and worst investments
43:13 The investor Alex rates above Warren Buffett
44:34 What finance can learn from writing for a general audience
51:20 Alex’s favourite market overreaction
52:50 Where to find Alex and The Madness of Markets