Ben Graham: Relative Utility Investor

One of my themes in The Missing Risk Premium is that people i people are benchmarking--aka relative utility investors--then they only deviate from the benchmark of what everyone else is doing  when they feel they have an edge. There's no other reason to do so. As many people falsely believe they have an edge in highly risky (antifragile?) stocks, this causes these securities to have lower-than-average returns within bonds, stocks, options, horses, and lotteries.

It's important to recognize this is the reason people take concentrated bets. The Wall Street Journal has an article on an old colleague of classic value investor Benjamin Graham, and notes the 107 year old's guiding principle:

His abiding goal, he told me, is "to know much more about the stock I'm buying than the man who's selling does."

That's a good rule, often noted by Graham. It's obviously impossible, in aggregate, but I think it's not only descriptive, but good normative advice. If you know that's the game you are playing, it should create greater caution, more sober risk-taking. The alternative is that you can take big risks and these generate return premiums via their risk premium, but alas the risk premium is usually negative, so that theory seems falsified via conventional empiricism.