Posts filed under “Cognitive Foibles”
Will they never learn?
Yesterday, oil rallied 4.3 percent and gold gained 3.6 percent as commodities had an up day after a long and painful fall. The fascinating aspect of the trading wasn’t the $45 pop in gold, nor the even greater percentage rally in oil, but the accompanying narrative. (As of this writing, each has giving up about half of those gains).
When it comes to speculating, especially in precious metals, it is all about storytelling. Over the years, I have tried to remind investors of the dangers of the narrative form (See this, this and this). Following a storyline is a recipe for losing money.
Why? The spoken word emerged eons ago and narration was a convenient way to pass along information from person to person, generation to generation. Your DNA is coded to love a good yarn of heroes and villains and conflicts to resolve, preferably in a way that is both exciting and memorable.
However, your genetic makeup wasn’t created with the risks and rewards of capital markets in mind. When it comes to being suckers for storytelling, I have been especially critical of the gold bugs. Since 2011, the gold narrative has been a money loser, the secular bull market for the metal clearly over.
However, gold often provides a plethora of teachable moments. I want to point out several recent gold narratives that have been dangerous to investors.
The quality of our discourse is decaying. This was once a standard complaint about the tone and depth of our national political debate. Now it has spilled into the financial realm. Shall we blame Twitter, trolls or bloggers? I am unsure of the underlying reason. But as we have seen far too, financial discussions seem…Read More
We have said a good deal in this space about the futility of trying to time short-term market moves (see e.g., this, this and this). No one has demonstrated the ability to do this consistently over time. While it is possible to avoid the very largest of collapses over long periods of time using a…Read More
After 30,000 posts, Big Picture blogger has figured a few things out Barry Ritholtz Washington Post, September 19, 2014 Sometime last week, I published my 30,000th blog post. This was no small accomplishment — I started the Big Picture blog back in 2003. Since then, I have published a stream of charts, investing…Read More
Michael Mauboussin is our Masters in Business interview this weekend.
What role, exactly, do skill and luck play in our successes and failures? Some games, like roulette and the lottery, are pure luck. Others, like chess, exist at the other end of the spectrum, relying almost wholly on players’ skill.
In his provocative book, Michael Mauboussin untangles the intricate strands of skill and luck, defines them, and provides useful frameworks for analyzing their relative contributions. He offers concrete suggestions for how to put these insights to work to your advantage in business and other dimensions of life.
About the author:
Michael J. Mauboussin is a Managing Director and Head of Global Financial Strategies at Credit Suisse. Prior to rejoining CS in 2013, he was Chief Investment Strategist at Legg Mason Capital Management. He is also the author of three books, including More Than You Know: Finding Financial Wisdom in Unconventional Places, named in the The 100 Best Business Books of All Time by 800-CEO-Read. Michael has been an adjunct professor of finance at Columbia Business School since 1993, and received the Dean’s Award for Teaching Excellence in 2009. He is also chairman of the board of trustees of the Santa Fe Institute, a leading center for mulch-disciplinary research in complex systems theory.
Last month, I spilled a considerable number of pixels explaining why Rupert Murdoch’s Time Warner bid had no significance to whether or not this is a market top. My short list included complaints of cherry picked data that somehow ignored most of Murdoch’s M&A activity over the past half century; a laughably small sample size…Read More