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Monday 30 March 2020

On Dinosaurs and Dividends

Mass Extinction
Sixty-six million years ago an asteroid blew its way through the Earth’s atmosphere and detonated in what we now know as the Yucatan Peninsula in the Gulf of Mexico. The result was a mass extinction event which wiped out about 75% of the world’s species including all of the flightless dinosaurs. As Black Swans go, it was a biggie.

Right now investors are experiencing their own version of the K-Pg event, with whole countries going into lockdown as homo sapiens once more shows its surprising capacity to act collectively when faced with real and present danger. As a side effect investors are discovering that dividends are rapidly becoming an endangered species; but there again – does it matter?

Saturday 28 March 2020

Lockdown Learning: A Reading List for Behavioral Investing

If, like me, you find yourself with an unexpected amount of leisure time you may want to spend some of it catching up on your investing education. At the very least it’ll be a distraction from the chaos out in the real-world, and even if you don’t learn anything it’ll probably stop you from trading ...

Read on...

Thursday 26 March 2020


Oops, Apocalypse
The pandemic that’s upon us is – obviously – a complete surprise, one that couldn’t be planned for. Understandably governments are reacting in real-time to an unfolding threat in the best way that they can. It’s – as they say – a Black Swan event.

Only – it isn’t. Pandemics are not unknown unknowns, they’re known unknowns. Just as in 2008 when governments had started to forget the lessons of the Great Depression so they have forgotten the lessons of the Spanish ‘flu pandemic of 1918. History will not be kind.

Anchors A-weigh!

Lost At Sea
In these uncertain times, as the Covid-19 virus moves across the planet, we’re seeing markets yo-yoing with wild price fluctuations on almost a daily basis. Jumps or falls of over 5% are commonplace. This is not normal market behaviour.

However, it isn’t unusual behaviour either – in the context of market history. Anyone who remembers 2008 or 2000 or even 1987 will have seen this before. This is what happens when investors lose their anchors – with nothing to attach to they follow each other, and the result is very predictable and not at all pretty.

Saturday 21 March 2020

Markets are a Confidence Trick

The Downside of Paradise
Many investors are experiencing the real downside of stockmarkets for the first time. Suddenly they’re no longer placid, happy holiday resorts where riches gently roll to shore simply by waiting. A volcano has erupted and everyone is running around with their hair on fire stealing each other’s coconuts and hoarding pineapples.

Of course, paradise always had a lurking dark underside and even an unexpected eruption will eventually lead to vigorous green shoots appearing in the fertile volcanic ash. However, people don’t really think rationally about these things – their behaviour is dictated by how confident they feel and right now certainty is not available. Well, things will get better, but we have a ways to go yet.

Monday 16 April 2018

Forecasts? I Haven't Got A Clue ...

Small Worlds

We predict things all the time, we can't help ourselves. And in the small world that constitutes our immediate bubble of experience those predictions may have some validity. But in the big world that we inhabit they often don't.  Which of those worlds do you think more accurately represents stockmarket investment?

It's difficult for us to accept that our small world experience doesn't scale up to the big world, but it's often true. To all intents and purposes we're infants teetering on the edge of the volcano: to all intents and purposes we know absolutely nothing worth knowing.

Friday 9 March 2018

Cursed By Momentum

Edgy Investors

Although most investors have no edge on the market there's a proportion of them that persist in trading actively, the main effect of which is to enrich their brokers. There are various explanations of why this occurs, but it seems to come down to some combination of inherent overconfidence and a perverse refusal to take account of negative information. 

This is particularly dangerous in calm periods such as those we’ve been experiencing in markets over the past few years.  In such times momentum strategies are particularly effective – and serve to supercharge the behavior of naturally overconfident individuals. The end results are usually not pretty..

Monday 12 February 2018

Bias In Action

Myopic Urges

The recent sharp correction in markets has clearly surprised a lot of investors. No doubt this is partly due to the standard myopia people seem to exhibit as soon as the last crash is out of sight, but it also seems to be connected to the fact that the seemingly inexorable rise in share prices and the continuing low interest rates on deposits has tempted new people into stocks. Faced, for the first time, with nasty losses they’re casting about for some kind of strategy to deal with the situation.

In truth if you need to find a strategy after markets have started falling it’s too late. For most of us the only sensible approach is to only buy things we’re comfortable holding through any kind of downturn and to then do nothing when volatility strikes. But even experienced investors face the urge to do something – anything – in the face of mounting losses. This is action bias, in action.

Monday 24 April 2017

Putting Pro-Innovation Bias on the Blockchain

Blockchain Bias

Over the past couple of years I've spent a lot of time listening to people wittering on about "the blockchain". They've claimed it can solve a plethora of society's ills - everything from the elimination of poverty to the overthrow of fiat currencies and the nation state.

Being charitable this is evidence of pro-innovation bias in all its perverse glory. Being cynical it's evidence of people trying to scam investment funds by capitalizing on the halo effect. The blockchain is a brilliant piece of innovation, which will one day - probably - lead to significant economic benefits, but in the end it's just another piece of technology.

Monday 17 April 2017

A Catalog of Investing Errors

Love Lists

We're attracted to lists like moths to flames and netheads to clickbait. The Big List of Behavioral Biases is by some way the most popular page on this website, but it actually provides very little insight into investing successfully.

Behind this, though, lies a deeper truth. Lists are processed more easily by the brain, and they're perfectly optimized for the click and go environment that is the Internet. Here I explain why. In a list. Obviously.