Posts filed under “Cognitive Foibles”

More Signal, Less Noise

Its Friday, the day I like to step back and get all Zen on y’all.

As promised yesterday, our subject this morning — indeed, over the past few months — is how to reduce the meaningless distractions in your portfolio (and your life). You want less of the annoying nonsense that interferes with your investing, and more of the meaty data that allows you to become a less distracted and more purposeful investor.

This is a continual process. For me, finding moments of quiet contemplation to think things through is very important. Sometimes that means taking a walk through the woods, or sitting on a boat deck or merely relaxing in a hammock with no distractions. You may prefer meditation, jogging or yoga. Anything that allows you to get out of your self for a few is enough.

My daily process of waking before dawn and writing things down is an enormous aid to me figuring out what I think, to refining my understanding of what is really going on and why. I liken it to an editing process. I spend most of my quiet time deciding what to eliminate. After this process, whats left is almost all signal, no noise.

Here are some things you need to understand if you want to decrease the noise:

More Signal, Less Noise

1. News is Old — it is misnamed and not especially forward looking;

2. Data first and foremost; avoid the anecdotes and narratives;

3. Everyone talks their book (i.e., Whats their agenda?)

4. Recognize what financial chatter is merely idle gossip;

5. What is within your control? What is not?

6. Understand empiricism and probability analysis;

7. Eliminate all sources that are biased, or are not driven by your goals, or have a different agenda; (Delete money losers with Extreme Prejudice)

8. Understand the concept of time, and the long game

9. Separate what is for Fun and what is for Real

10. Refining your process is your goal. Get that right and the outcomes will improve naturally;

Your consistent focus should be to keep yourself concentrating on that which truly matters and learning to reduce or even better, ignore that which does not . . .

If there is interest, I might expand this into a full WaPo column.



Things I Don’t Care About (January 15th, 2013)

What Do You Control? (May 30th, 2013)

Asking the Right Questions (July 18th, 2013)

The Price of Paying Attention (November 2012)

Who Do You Trust? (January 2008)

Lose the News (June 2005)


Category: Cognitive Foibles, Financial Press, Investing, Psychology, Rules

Look Out Above, I Dont Know Why Edition (part II)

click for updated futures Source: Bloomberg     Yesterday morning I wrote Look Out Below, I Don’t Know Why Edition. Today, the market half is a mirror image — up about as much as yesterday was down. The only thing that remains the same is my ignorance — I really don’t know why markets are…Read More

Category: Cognitive Foibles, Investing, Markets

NYT Discovers Confirmation Bias

  “Perhaps something more complicated than sketching out voting districts is at play. The polarized political map is now accompanied by a media ecosystem that is equally gerrymandered into districts of self-reinforcing discourse.”   From the better-late-than-never files: I want to direct your attention to an article from David Carr, titled It’s Not Just Political…Read More

Category: Cognitive Foibles, Financial Press, Really, really bad calls

15 Biases That Make You A Dumb Investor

I am off to Toronto, where I am presenting at the annual CFA forecasting dinner. (I am the counter-programming, which means I get to explain why you humans are so bad at forecasting. From Morgan Housel, here are several cognitive biases that cause you to do dumb things with your money. Be sure to check…Read More

Category: Cognitive Foibles, Psychology

Biased Assimilation and Attitude Polarization

Biased Assimilation and Attitude Polarization: The Effects of Prior Theories Lord, Ross & Lepper (1979) People who hold strong opinions on complex social issues are likely to examine relevant empirical evidence in a biased manner. They are apt to accept “confirming” evidence at face value while subjecting “disconfirming” evidence to critical evaluation, and, as a…Read More

Category: Cognitive Foibles, Psychology, Think Tank

Is the Market Rallying on Syria or Summers?

There is a certain school of thought — and I use that word loosely — that seemingly tries to tie each twitch of the market, every noisy jag up or down — to some broader issue. Partisan politics, economics, technology, and of course, presidential elections becomes fodder for this school of thought rationalization. Flip on…Read More

Category: Cognitive Foibles, Current Affairs, Markets, War/Defense

Paul Farrell: Beware of Predictions, Optimism Bias

The following assortment of quotes comes from Paul Farrell   2007-2008 bank credit meltdown — the top nine happy-talking gurus False predictions made before the 2008 subprime credit meltdown: ‘Mad Money’ Jim Cramer: “Bye-bye bear market, say hello to the bull.” Ken Fisher: “This year will end in the plus column … so keep buying.”…Read More

Category: Cognitive Foibles, Really, really bad calls, UnGuru

Reagan’s Million-Jobs Month Revisited

* Sigh.* @TBPInvictus here I see once again that the canard about Reagan’s million-jobs-month is making the rounds: “Reagan’s best job month garnered the very top ranking since WWII with 1,114,000 jobs added in September 1983. A single month with more than a million jobs added. So far Obama can only wish for such a…Read More

Category: Analysts, Cognitive Foibles, Data Analysis, Financial Press, Really, really bad calls

The Narrative Fails

Its Friday (and a hot summer Friday at that), and as such, I like to wax philosophical about what I see around me as some of the broader issues today. Cullen Roche of Pragmatic Capital sets the scene for us: “The economy continues to do okay, the stock market is hitting all-time highs every day,…Read More

Category: Cognitive Foibles, Investing, Philosophy, Psychology

Sitting Down with Dr. Daniel Kahneman

Dr. Daniel Kahneman, winner of the 2002 Nobel Prize in economics, joins us to discuss his book, Thinking, Fast and Slow, and how different systems of thought can affect our judgment when making decisions.


Hat tip Morgan


Category: Cognitive Foibles, Psychology, Video