Posts filed under “Psychology”

Beware those who are never, and can never be wrong.

Lately, I have been hear an interesting type of argument. It is a form of debate that is both disingenuous and dishonest. We will call this the “Can’t Lose Argument,” or CLA. Worse than confirmation bias, it is a money-losing exercise in narcissism.

The CLA goes something like this: A data point will be mentioned, and no matter what the net change in that data — up, down or neutral — it is somehow bad for markets. Stocks, bonds, commodities, real estate, all are fair game for the CLA.

Let me share a few examples of it:

Earnings

CLA: “This quarter, corporate earnings are going to be weak. Perhaps even a negative growth number. That proves a recession is close.”

The Rational Person, or RP for short, notes that analysts forecast higher profits.

CLA: “Well, maybe not negative, but soft — worse than last year in the same quarter.”

Then earnings exceed forecasts.

continues here

 

Category: Psychology, Really, really bad calls

Cognitive Dissonance Is Hurting Your Returns

Regular readers know I enjoy discussing behavioral aspects of investing. The reasons for this are twofold: First, we can’t control the markets, but we can control our own reactions to it (at least we can try). And second, many studies have shown that investors suffer from a behavior gap between what they should garner in…Read More

Category: Cognitive Foibles, Investing, Psychology

Tales of the Death of Hedge Funds Have Been Greatly Exaggerated

During the past few months, we have posted a few words here on the quandary that is hedge funds. One such effort was titled “The Hedge-Fund Manager Dilemma,” and it explored the public’s fascination with the hedge-fund crowd. The next, “Why Investors Love Hedge Funds,” looked at why, despite stunning underperformance during the past decade,…Read More

Category: Hedge Funds, Investing, Psychology

Masters in Business: Rob Arnott of Research Affiliates

Rob Arnott turned the world of passive index investing upside down. Best known for creating “smart beta,” Arnott creates models weighted b y four factors: Sales, profits, book value and dividends. Market cap is not relevant to him. Funds running Arnott’s models manage about $200 billion dollars in smart-beta strategies. Assets have increased by 59…Read More

Category: Financial Press, Index/ETFs, Investing, Psychology

Nick Epley: Why You Should Talk to Strangers

Nicholas Epley is the John T. Keller Professor of Behavioral Science at the University of Chicago Booth School of Business. He was named a “professor to watch” by the Financial Times, is the winner of the 2008 Theoretical Innovation Prize from the Society for Personality and Social Psychology, and was awarded the 2011 Distinguished Scientific…Read More

Category: Psychology, Weekend

How to Change a Habit

Click for the ginormous version. Source: Charles Duhigg

Category: Digital Media, Psychology

It’s a Bubble! It’s a Recession! It’s a Crash!

When was the last time anyone got good investing advice from the front page of a newspaper or magazine or from a television pundit? That is the question I have been pondering during this market cycle. Whether it is the price of equities or the state of the economy, I have grave reservations about relying…Read More

Category: Cognitive Foibles, Financial Press, Markets, Psychology, UnGuru

What to Do in a Market Correction

Things to try in a market correction: • Respond emotionally, giving in to your lizard brain. It does a good job of keeping you alive, so you might as well hand over management of your portfolio to it. • Rely on your gut instinct to lead you out of trouble. After all, your instincts helped…Read More

Category: Cognitive Foibles, Investing, Markets, Psychology

Personality Research Says Change in Major Traits Occurs Naturally

Source: WSJ

Category: Digital Media, Psychology

Single Variable Market Analysis is for Losers

If you work in finance, you will invariably come across an example of single-variable analysis. Almost daily, we see terrible examples of this sort of analytic error, rife with logical weakness, yet offered with the highest degree of certainty. The way this works is as follows: Some ominous data point will be shown, along with…Read More

Category: Analysts, Data Analysis, Investing, Philosophy, Psychology, Quantitative, Really, really bad calls