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Roughly 10% of stock market activity can be attributed to real-life humans deciding which stock(s) to buy/sell. Another 40% or so reflect decisions to invest in a specific industry or the entire market through indexes and ETFs. This means half of all stock market activity is done automatically by Alexa “bots”/computers/algorithms. And since there must [...]
So you're a long-term investor, eh? You don't make emotional decisions, right? Then who's responsible for this: The above (courtesy of Bloomberg) shows that over the 4 trading days from Feb 1-6 "investors" (let's call them what they are...speculators) pulled a record $17.4 billion from the benchmark ETF tracking the S&P 500. People continue to [...]
The amount of informational junk floating about is astronomical – content for the sake of content as we like to call it. The explosion began with 24-hour news channels. The low barriers to entry of Twitter, podcasts and the like have taken it to a new level. It’s created what we’ve often called an inverse [...]
The stock markets hit all-time highs on a seemingly daily basis. Investors are puffing out their chests proclaiming they’re not only buying and holding but adding to their equity positions by buying the dips. It’s easy to buy and hold in an up market. The question is . . . how many investors will stick [...]
As summer wanes and we power towards Labor Day we’re left with a couple of realities: the days are hot the news cycle is slow Hot days find us seeking A/C and a cool drink. Slow news cycles make us overreact as the insignificant suddenly seems anything but. Lately we’ve been bombarded with the usual. [...]
Although investors claim to accept market fluctuation as normal we find precipitous selloffs overwhelming. Why? . . . because they happen rapidly and randomly. Lost in the sea of emotion is that equity market annual returns have been mostly positive despite significant market declines in each year. Since 1980 the average intra-year pullback in the [...]
I believe I've passed the age of consciousness and righteous rage. I’ve found that just surviving was a noble fight. I once believed in causes too. I had my pointless point of view. And life went on no matter who was wrong or right. - from Billy Joel's "Angry Young Man" Life advice from the [...]
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 [...]
The results of a recent poll by the CFA Institute exhibit interesting findings regarding our bias towards ownership – the so-called Endowment Effect. A full 84% of respondents indicated selling is tougher than buying. The most emotionally taxing decisions are outright sales (43%) followed by short sales (41%). Buying on margin (13%) came in third. [...]
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. [...]