Comments on The Psy-Fi Blog: The Case of the Delusional Investor

ouch, by jingo. i like this blog very much, but ...

2009-10-13T00:23:26.188+01:00

ouch, by jingo.

i like this blog very much, but mayyybe you tend to say 'know thyself' without saying 'test thyself'. you have to take the action in order to know; & so humility and humour should be advanced parallel to balance sheet analysis. otherwise maybe the fear and greed are lurking unexposed. the Psy is for Psychoanalysis, right?

i'll read the value-investing posts again....

In rough order: 1. I think balance sheets are ver...

2009-10-12T21:24:10.587+01:00

In rough order:

1. I think balance sheets are very important but invariably fail to tell the whole truth. But I believe that value investing does work over the longer term, if you have the patience and courage to stick with it, and I write about it occasionally.

2. I think worrying about the general political/economic climate will usually lead people into making horrible mistakes. The future can't be predicted from the past and a good job too. In such a context timing is usually a fairly hopeless activity. I write about this too, rather too often I suspect.

3. I agree that behavioural finance is about controlling your own fear and greed but research generally suggests that this is very difficult for most people most of the time. And if you only do as well as the market you'll be beating most of the thick people to start with.

And I do write for thick people too, you know ...

2009-10-12T20:59:45.329+01:00

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i'd be interested (by jove) to hear what you t...

2009-10-12T20:14:53.602+01:00

i'd be interested (by jove) to hear what you think of this: giving ichmoku clouds, elliot waves, tipsters etc the bird is a fine rule, but you, and holmes (of all people), seem to have no interest in the positive virtues of balance sheet reading, or in thinking about the general political/economic climate and timing investments accordingly.
you ought to remember that holmes was notorious for long bouts of violin playing if he'd done his research & had no immediate lead to chase, while watson paced and fretted. i'll bet he timed his buys like the best of them...
and the other thing is: you don't have to beat all the people, only the thick ones. behavioural finance is about controlling your own fear and greed, and exploiting other people's.

Lovely post Timmar. Deserves to be super widely re...

2009-10-10T09:33:16.193+01:00

Lovely post Timmar. Deserves to be super widely read!

“Unlike you, Watson, I have no time for financi...

2009-10-04T20:32:37.186+01:00
“Unlike you, Watson, I have no time for financial speculation. My savings are safely invested for the long-term on the best modern principles. With each fee I simply add a little more to my fund, at the lowest cost possible, without regard for the market's undulations and I shall not call upon it until I retire to a little cottage on the South Downs".

By taking the "best modern principles" on faith, Holmes has learned just enough about investing to be truly dangerous. He has convinced himself that he is not engaged in speculation, but he is recklessly ignoring the price at which he is buying stocks if he makes purchases "without regard for the market's undulations."

Say that Holmes began buying stocks in January 2000. Going with those "best modern principles," he invested heavily in an asset class likely to pay an annualized return of 1 percent real for the next 20 years and took a pass on an asset class with a government guaranty attached that was offering 4 percent real (Treasury Inflation-Protected Securities). That's a 3 percent differential every year for 20 years running.

Had Holmes never heard about the "best modern principles" for investing, he might have paid heed to his common-sense understanding that stocks are not the place to be after the most insane bull market in history had been raging for 25 years. He could have invested more prudently and had a much larger portfolio to invest in stocks when prices returned to reasonable levels. And the miracle of compounding returns would have applied to that huge differential for decades to come, making the payoff for going with common sense bigger and bigger and bigger.

A true detective would have wondered why our earlier attempts to persuade ourselves that price doesn't matter all ended in mass financial ruin. The reality, of course, is that there is nothing "modern" about this idea. It is the oldest Get Rich Quick scheme in the book. The tipoff is that the marketing slogans have been repeated so many times that everyone who has heard the "wisdom" that "timing doesn't work" or that "stocks are always best for the long run" has come to fancy himself a Sherlock Holmes.

When everybody who knows how to turn on the television set or buy a magazine thinks he is Sherlock Holmes, there's a good chance that nobody really qualifies. When large numbers of people open themselves to the idea of checking whether the marketing slogans stand up to scrutiny, it will be safe again to invest in stocks.

Rob