Question:

You are an active fund manager. You were recently promoted to the role of CIO. You are trying to revise the core investment philosophy of your firm. While reading some of the literature that you regularly send to your clients you find the following two statements. Provide detailed comments on each of the investment beliefs given below. State whether you support the belief or NOT, providing substantiation with academic citations and professional examples.

Investment Belief 1: Investors are not rational but are influenced by emotions and inherent biases.

Investment Belief 2: Professionally managed funds provide more efficient and effective diversification than direct investment portfolios.