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The Future is Made in the Bedroom, Not the Boardroom

March 27, 2017 Comments (0)

RIP Hans Rosling Hans Rosling was, if you’re a data geek like me, a hero. His life was spent not just combating fake facts and opinion based decision making but also in finding new and imaginative ways of visualising real data. And he was in demand by corporations across the world because his work showed them where to invest. So obviously Rosling wasn’t an economist: he was a population statistician who built his ideas on data, rather than models. And what his data suggests is that the future...

Idiots in Investing Echo Chambers

March 20, 2017 Comments (0)

Investing in the Dead Some people like to wander round graveyards. I get the same sort of ghoulish pleasure out of frequenting investment discussion boards. They're full of Pollyannas, forever only able to see the good in the stocks they invest in. Sadly they're almost always wrong. But it's kind of fun watching them keeping the reanimated corpses of zombie stocks moving about through the power of sheer stupidity. The Glad Game Pollyanna was the eponymous child heroine of Eleanor Porter's 1913...

Blindsided by Brexit Bias

July 4, 2016 Comments (0)

Unbalanced The result of the UK’s referendum on the EU caught markets by surprise. They’d soared the previous day in the expectation of a Remain vote and were thrown into turmoil when it turned out a majority of the British were less concerned with economic stability and more with mass immigration. The polls leading up to the referendum were finely balanced; if they were to be believed then the result was far from certain right up to the end. Yet many people took the market surge at face value...

Bad Investor Behavior Can Be Very Expensive

March 31, 2016 Comments (0)

Brief interview with yours truly by Robin Powell from The Evidence Based Investor: Also take a look at SmartInvestorTV for a bunch of other interesting resources.

Meme Reversion

March 25, 2016 Comments (0)

500 and Counting I’m now about 500 posts and a million words into the back-to-front world of financial psychology and you might think I'd have learned something useful by now. Well, it turns out there are only a couple of things you need to bear in mind: that mean reversion is the only certain thing about markets and that (almost) no one is interested. The reason that no one is interested is that everyone is convinced that they can identify the narrative, the story, the meme that will find the...

Behavioral Bias 101: #3 Curse of Knowledge

March 19, 2016 Comments (0)

Know What? We're often told that knowledge is power. However, in reality, knowledge may be unexploitable leading to the paradoxical situation that high quality goods get overpriced and low quality ones underpriced. Insiders, it turns out, are often burdened by the curse of knowing too much. Part 3 of 101 Ways To Lose MoneyCurse The curse of knowledge is related to hindsight bias, the problem being that if we have expert knowledge about something - the real value of a security for instance - we...

Building An IKEA Portfolio

March 16, 2016 Comments (0)

Cartoon Capers If you get someone to build an IKEA sideboard – you know, one of those flat-pack conundrums that involves trying to work out what a cartoon character is doing with a hammer, a drill and forty three assorted metal dowels – they immediately place a higher value on it than anyone else would, even if it goes on to develop an alarming 45 degree tilt.  This is the IKEA effect. It’s associated, sort of, with a more general behavior that’s been known about for years, the...

Less Is More

March 10, 2016 Comments (0)

Error, Human Much market analysis operates on the assumption that more data is better – more data leads to more accurate results. More data may require more complex processing, leading to greater and greater requirements for computing power but, in principle, the idea is that more is better. Out in the real world, however, we don’t have the luxury of this kind of analysis. This leads to errors which sometimes we call biases. But surprisingly it also, often, leads to better results. It may just...

Behavioral Bias 101: #2 Wishful Thinking

March 3, 2016 Comments (0)

Permanently High Famously the economist Irving Fisher predicted that stocks had reached a "permanently high plateau", just before the Wall Street Crash. He was talking his own book, having loaded up heavily in stocks. Fisher was engaged in wishful thinking, a cognitive bias that's rife among investors, a notoriously optimistic bunch when it comes to expecting the downright improbable. Wishes and Wants Wishful thinking is the idea that whatever we want to be true affects what we believe to be...

The Chart Illusion

March 1, 2016 Comments (0)

Timing Dragons Although, logically, I’ve always felt that the idea of investing by charts should be something on the map between “Dragons” and “Free Lunches” I’ve never been so sure of this as to be outright skeptical. And I know a few smart people who insist that they are at least helpful in timing investing decisions. Of course, the idea of “timing” anything in investment is fairly ludicrous anyway, but some recent research suggests the whole charting concept does actually help in prediction....