The Irrelevant Federal Reserve

By |2017-07-17T12:21:55+00:00June 16th, 2016|Global Market Update|

What if they had a Fed meeting and nobody cared? Janet Yellen at her press conference. Source: Federal Reserve The FOMC had been trying to talk up rates for the past two months. Some notable policy doves were commenting that the market had it wrong—that interest rate expectations were too low, and that we should expect two or three rate hikes this year. Even Chair Yellen got in on the act. In May, she noted that long as the economy continues on-track, the Fed [...]

The Biased Investor: Putting It Together

By |2017-07-17T12:21:55+00:00June 15th, 2016|Global Market Update|

The Biased Investor: Putting it Together So how many are there? Blind Men Appraising an Elephant. Edo Period Illustration. Source: Brooklyn Museum How many mental mistakes can we make? We’ve discussed loss-aversion, overconfidence, herd behavior, and all kinds of cognitive biases. But there are lots more: Wikipedia lists over 150 different kinds of mental errors, from anchoring to the money illusion to the zero-sum fallacy. People are intuitive thinkers. Often, there just isn’t time to think things through. If an oncoming car changes direction [...]

The Biased Investor: With the Benefit of Hindsight

By |2017-07-17T12:21:55+00:00June 14th, 2016|Global Market Update|

It’s all so obvious. Isn’t it? Photo: Aimee Low. Source: Morguefile That’s the way everything looks when you look back. When we examine the market of the late ‘90s, it’s “obvious” that tech stocks were in a bubble and overpriced. When we look at early 2009, it’s “obvious” that the world was on sale, and that great companies could be bought for a fraction of their true worth. When you look at the past year, it’s “obvious” that the market has lost momentum and [...]

The Biased Investor: A Tinted View

By |2017-07-17T12:21:55+00:00June 13th, 2016|Global Market Update|

How do you see the world? Source: Pinterest. Over 200 years ago Immanuel Kant pointed out that everyone looks at the world through his or her own particular lenses: we’re limited by our own minds. We can never know a thing-in-itself; we only know what we think about something. We can’t really see the world objectively; all we have are different shades of rose-colored glasses. This can be a problem for investors. We tend to search for, interpret, favor, and recall information that confirms [...]

The Biased Investor (Part 8)

By |2017-07-17T12:21:55+00:00June 10th, 2016|Global Market Update|

The Biased Investor (Part 8) “Nothing ever changes, nothing ever will” – Les Miserables, Herber Kretzmer lyrics “Fantine,” by Margaret Hall. Source: Wikimedia Victor Hugo’s Les Miserable is a deeply enriching story of human suffering under various circumstances. It is considered one of the greatest novels of all time. It describes how one man moves from corruption and bestiality to grace and duty—from hell to heaven. Along the way, he interacts with characters moving the other way. One refrain we hear in the musical [...]

The Biased Investor (Part 7)

By |2017-07-17T12:21:55+00:00June 9th, 2016|Global Market Update|

The Biased Investor (Part 7) Does familiarity breed contempt? Source: Public Domain Some people love novelty. Others want to go with what they know. When it comes to money, evidence shows that people overwhelmingly prefer things they are familiar with to what they don’t know very well. “This isn’t just a human factor. I discussed before how a researcher played musical tones around fertile chicken eggs, and found that when the chicks hatched they preferred the sounds they had been exposed to while in [...]

The Biased Investor: Framing

By |2017-07-17T12:21:56+00:00June 8th, 2016|Global Market Update|

What does “framing” do to our thinking? Photo: Dag Carolus. Source: Wikipedia Frames are important. The create the setting for a picture. They can protect it and highlight what the artist wants us to see, or make a small picture seem much bigger. Frames have been used for thousands of years. In our thinking, people tend to react differently depending on the way information is presenting. If you hear that a new colleague is efficient, hard-working, insensitive, and cold, your impression will be different [...]

The Biased Investor (Part 5)

By |2017-07-17T12:21:56+00:00June 7th, 2016|Global Market Update|

What does it mean to be rational? Illustration: Friedrich Blitz. Source: Wikipedia We need to make decisions every day about all kinds of things: what to eat, what to wear, how to answer the latest question from family members or co-workers or clients. Sometimes, we have time to think things through. Often, however, we don’t have that luxury—so we develop shortcuts, rules-of-thumb, that help us decide what to do pretty quickly. For example, the weather is pretty stable. If slacks and a long-sleeve shirt [...]

The Biased Investor (Part 4)

By |2017-07-17T12:21:56+00:00June 6th, 2016|Global Market Update|

Is there safety in numbers? Photo: W Ribs. Source: Wikipedia People are social animals. We like to gather together. If we’re isolated, we get lonely. Indeed, solitary confinement—enforced isolation—is one of the most severe kinds of punishments. In animals, prey animals seek cover from one another, and some predators hunt cooperatively in a pack to bring down big game. Also, by staying in a group, individuals can benefit from the information other group members may have about where to find food. Among humans, crowd [...]

The Biased Investor (Part 3)

By |2017-07-17T12:21:56+00:00June 3rd, 2016|Global Market Update|

The Biased Investor (Part 3) No one likes to lose. Public Domain. Source: Wikipedia We’re a culture that thrives on winning. We don’t even like to think about losing. This holds true in sports, in relationships, and in finance. When a choice is presented between winning and losing, we fear the loss about twice as much as we value a gain. It’s one reason why money-back guarantees are so effective in marketing, even though they are rarely exercised. People don’t want to get stuck. [...]