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We tend to focus on what’s successful and ignore what isn’t. We focus on the known, the here and the now while forgetting that which previously occurred. We don’t learn from failure. We don’t learn from mistakes. We’re guilty of survivorship bias. We’ve elevated the path to success (or those we believe are causal) to [...]
Our caveman ancestors had a simple test for survival – Fight or Flight. In our modern world money is the source of survival. As a result every primitive survival and pleasure-seeking drive is intensely focused on capturing and guarding money. These drives are involuntary and highly emotional emerging more quickly and forcefully than logical analysis. [...]
How often do our brains make connections that don’t exist? More often than we think. A happened and then B happened so A caused B. Really? Hmmm... Correlation (no matter how weak/strong) and causation are two incredibly different things. Confusing the two often leads to poor decision making and erroneous conclusions. Sometimes the outcome is [...]
Two plus two equals four. That’s math. It’s real. It’s measurable. It’s fact. That’s how finance is supposed to work. But maybe four is not enough. Maybe it’s too much. How quickly can I get from two to four? I used to be at four but now I’m at two and since four is ‘right’ [...]
In Oliver Stone’s Wall Street the character of Lou Mannheim was expertly played by Hal Holbrook. Should any less have been expected from such a phenomenal actor? The character was written as a seasoned veteran and included in the film to impart wisdom on the young and relatively inexperienced. Here are a couple of his [...]
There’s logic and there’s emotion. If you make decisions based upon the former the following is for you. If you prefer the latter (or delude yourself into thinking you’re the former but are truly the latter) skip the logic section. LOGIC: Over time the prices of financial assets such as stocks/equities generally increase. Stock prices [...]
Couple of problems with being human. Well, OK, more than a couple but we'll limit to two for the sake of discussion. Anyway... We assign way way way too much value to the most immediate events. It's called recency bias. The S&P 500 went from a low of 666 in March 2009 to over 2,900 [...]
The flowers sure do smelly lovely. Will they lead to an unpleasant financial odor? Passive investing (i.e. indexing) is all the rage. Academics preach its virtue. They justify their existence by cranking out study after study concluding most managers don’t outperform the indexes all of the time. Massive mutual fund complexes (we’re lookin’ at you [...]
Many brokerage firms and insurance companies speak from both sides of their mouths. Surprised? We shouldn’t be. The marketing departments of these firms promote the idea that employees are trusted advisors providing personalized investment advice. Conversely in an attempt to avoid complying with the upcoming fiduciary rule (i.e. doing what’s in the best interest of [...]
The typical investor is almost always his/her own worst enemy. Overconfidence, behavioral biases and emotional decisions conspire to ensure investment returns trail not only most major asset classes but even inflation. Consider the ROR of the average investor over the past 20 years: 2 SOURCES: JPMorgan Asset Management, Barclays, FactSet, S&P, Dalbar. 60/40 and 40/60 [...]