Customer Quote by Richard H. Thaler
““When closed-end funds are started they are usually sold by brokers, who add a hefty commission of around 7% to the sale price. But within six months, the funds typically trade at a discount of more than 10%. So the first puzzle is: why does anyone buy an asset for $107 that will predictably be worth $90 in six months? This pattern had induced Benjamin Graham to refer to closed-end funds as “an expensive monument erected to the inertia and stupidity of stockholders.” This was a more polite way of saying “THERE ARE IDIOTS,” which remains the only satisfactory answer to this first puzzle.† The second puzzle is the existence of the discounts and premia mentioned earlier. Why does the fund trade at a price that is different from the value of its holdings? The””
About This Quote
Source Book: "Misbehaving: The Making of Behavioral Economics" by Richard H. Thaler, 2015
Closed‑end funds often sell at a premium then trade at a discount, puzzling rational investors; the explanation points to investor irrationality and market inefficiency.
In simple terms: Investors may overpay due to bias, then see price drop.
Key Takeaway
Beware of paying premiums without value justification.
Themes
behavioral finance
market inefficiency
investment bias
Mood
analytical
cautious
Type
financial
behavioral
When to use this quote
- portfolio construction
- financial education
- risk assessment
Key Concepts
closed‑end funds
pricing anomalies
investor psychology
Questions to Reflect On
- Why do investors ignore discount signals?
- How can one profit from such inefficiencies?
A Different Perspective
Even irrational investors can create market opportunities.
![“I learned more in those six months [ in the White House] than in the prior six years. I don't think that anybody who has had the privilege to serve the country at that level should walk out and behave like a crybaby. And I plan to continue to serve the country in other capacities.” quote by Van Jones](https://sms4smile.com/quotes/img-quotes/3dc/van-jones-984_behave_i-learned-more-in-those-six-months-in-th_27061.jpg)
