Posts filed under “Cognitive Foibles”

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

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10.24.13 futes
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 up today or down yesterday.

One headline notes that “U.S. Stock Futures Rise Amid Earnings, China Factory Data” — but we had mixed earnings yesterday, and so far, earnings are mixed  today. And Chinese economic data was good yesterday. This leads to my regularly offering up my insight with a big fat I don’t know.

All too often, investors try to construct a plausible explanation, typically in narrative form, as to what is going on. The danger is not so much that they fail — that to be expected — but rather that they confuse their confabulated narrative for truth, and mistakenly believe their own bullshit for reality.

This leads to a combination of ill informed decisions making which cannot help but produce poor judgements.

Rather than focus on what is unknown, and perhaps unknowable, I would counsel investors to focus on techniques that eliminate the noise to focus on signal. Eliminating known errors is a good start, as is reducing the consumption of frivolous, consistently wrong, or merely useless junk.

How can you get more signal, and less noise in your day? There are ways to accomplish this, which I hope to detail tomorrow . . .

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

Pushing Back Against the Big Rally Miss

>   Two weeks ago, I managed to anger quite a few people with a Washington Post column titled: Missed the big market rally? Here’s what to do now. There were a variety of perturbed commenters both here and at WaPo as well as angry emails and assorted bemused tweets. While lots of readers, commenters…Read More

Category: Apprenticed Investor, Asset Allocation, Cognitive Foibles