Thursday, 2 January 2014
Quote for the day
“To get rich you need to get yourself in a situation with two things, measurement and leverage. You need to be in a position where your performance can be measured, or there is no way to get paid more by doing more. And you have to have leverage, in the sense that the decisions you make have a big effect.” - Paul Graham
23 Common Investing Biases: Which one is destroying your portfolio?
A heuristic approach is usually a good thing. We tend to lean a lot more when our learning is hands on. But many times such an approach can lead us to a biased approach because we're relying solely on one person's experience (our own). It reminds me of a verse in the book of Proverbs that says there is in a multitude of counselors.
The same can be said about investing. When we rely only on one person’s experience and expertise, we can fall victim to either their or our mental shortcuts which can then lead to systematic mistakes. Then two problems emerge:
1. We look at every situation through our rose colored glasses and force everything to fit our viewpoint.
2. Even after we make a mistake, we may not be aware of it causing us to continue to systematically make it again and again.
We're all biased to some degree.That’s inevitable. But biases can be reduced (though never fully eliminated) by getting a second or third opinion on which course to take … especially when it comes to investing our hard earned money.
Biases will cost you money. They can cause you to avoid risk in one situation (selling a winning investment too soon to “lock” in your gains) or expose you to too much risk (holding on to a losing investment hoping it will “come back”). There are times that selling your winners and holding on to your losers IS a good idea but it’s an even better idea to allow an unbiased third party such as a financial adviser to take a peek in your investing strategies so you don't let your emotions bias your decisions.
Have you noticed any of these types of biases in your thinking or your investing habits?
While it’s easy to see these biases at work in others, recognizing your own biases is much more difficult … and important. I'm sure if you think about some of the bad decisions you've made in the past, you're likely to discover one of the biases affected your judgment in some way. I know I can.
Bottom line
By understanding that these biases exist in your own decision making process will ultimately help you control and overcome them. Print out this list and keep it somewhere so that when you slow down and think about your next decision, you’ll know what to look out for.
Source:By Ron
http://www.thewisdomjournal.com/Blog/common-investing-biases/
The same can be said about investing. When we rely only on one person’s experience and expertise, we can fall victim to either their or our mental shortcuts which can then lead to systematic mistakes. Then two problems emerge:
1. We look at every situation through our rose colored glasses and force everything to fit our viewpoint.
2. Even after we make a mistake, we may not be aware of it causing us to continue to systematically make it again and again.
We're all biased to some degree.That’s inevitable. But biases can be reduced (though never fully eliminated) by getting a second or third opinion on which course to take … especially when it comes to investing our hard earned money.
Biases will cost you money. They can cause you to avoid risk in one situation (selling a winning investment too soon to “lock” in your gains) or expose you to too much risk (holding on to a losing investment hoping it will “come back”). There are times that selling your winners and holding on to your losers IS a good idea but it’s an even better idea to allow an unbiased third party such as a financial adviser to take a peek in your investing strategies so you don't let your emotions bias your decisions.
Have you noticed any of these types of biases in your thinking or your investing habits?
23 COMMON BIASES
- Recency bias: Drawing conclusions based only on recent information rather than a long term trend.
- Resolution bias: Failing to think beyond a preconceived notion (aka stubbornness!).
- Assumed association bias: Assuming certain associations exist with no real evidence.
- Authentication bias: A search (either conscious or unconscious) for supporting evidence that we made the right decision, while ignoring any and all evidence to the contrary.
- Mental accounting: The belief we are doing better than we are and making a decision because of it.
- Anchoring bias: Mentally locking information in our head even though it is now irrelevant.
- Sample size bias: Reaching a conclusion using only a small sample of the available information (the smaller the sample size, the greater the influence of luck on the results we get).
- Allegorical bias: Making a decision based on one person’s advice or one person’s experiences.
- Data mining bias: Finding patterns in randomness and using them to predict the future.
- Bubble bias: Failure to recognize that above average or below average results won't necessarily continue into infinity.
- Connection bias: Badly estimating the likelihood that certain foundational events will happen when those particular events must take place for a particular outcome to occur.
- Overconfidence bias: Failing to recognize that neither we nor our financial advisor is Warren Buffet … and never will be.
- Optimism bias: Ignoring what is staring us in the face while believing that “thinking positive” will make everything okay.
- Incorrect anchor adjustment: Assuming an outcome of an event will be exactly the same as the outcome of a similar prior event without examining the differences.
- Fear bias: Running from a down market.
- Greed bias: Running toward a bull market.
- Hindsight bias: Evaluating a decision after an event has taken place but now with perfect knowledge of the outcome (aka predicting the past).
- Avoiding uncertainty: A preference for stability rather than uncertainty, for security rather than risk.
- Status Quo: An aversion to change even when the change is for the better.
- Regret avoidance bias: Feeling more regret toward committed actions that have turned out badly rather than omissions that could have turned out favorably.
- Consistency bias: The need to be consistent with our decisions regardless of the cost.
- Escalation of commitment: The tendency over a period of time to increase the support of our initial decision.
- Crowd bias: The tendency to view the actions of others as validating a decision.
While it’s easy to see these biases at work in others, recognizing your own biases is much more difficult … and important. I'm sure if you think about some of the bad decisions you've made in the past, you're likely to discover one of the biases affected your judgment in some way. I know I can.
Bottom line
By understanding that these biases exist in your own decision making process will ultimately help you control and overcome them. Print out this list and keep it somewhere so that when you slow down and think about your next decision, you’ll know what to look out for.
Source:By Ron
http://www.thewisdomjournal.com/Blog/common-investing-biases/
Wednesday, 1 January 2014
Final 2013 Country Stock Market Performance Numbers
With the 2013 trading year now closed for business, below is a look at the final stock market performance numbers for 76 countries around the world (% chg in local currencies).
As shown, Dubai finished up the most in 2013 with a gain of 107.69%. Japan was up the fourth most with a gain of 56.72%, making it the best performing G7 country. The US ended up in 9th place globally with a gain of 29.6% -- not bad!
Of the other G7 countries, Germany finished third with a YTD gain of 25.48%, followed by France (17.99%), Italy (16.56%), the UK (14.43%) and Canada (9.55%).
Only 16 of the 76 countries shown finished in the red in 2013. Peru was down the most with a decline of 23%, while Brazil was the second worst performer on the list at -15.50%. It ended up being a rough year for the BRICs (Brazil, Russia, India and China). Of the four BRIC countries, three finished down (Brazil, Russia, China) while India was up just 8.98%. Will 2014 be the year where the BRICs make a comeback? We'll get our first data point on Thursday. Happy New Year!
As shown, Dubai finished up the most in 2013 with a gain of 107.69%. Japan was up the fourth most with a gain of 56.72%, making it the best performing G7 country. The US ended up in 9th place globally with a gain of 29.6% -- not bad!
Of the other G7 countries, Germany finished third with a YTD gain of 25.48%, followed by France (17.99%), Italy (16.56%), the UK (14.43%) and Canada (9.55%).
Only 16 of the 76 countries shown finished in the red in 2013. Peru was down the most with a decline of 23%, while Brazil was the second worst performer on the list at -15.50%. It ended up being a rough year for the BRICs (Brazil, Russia, India and China). Of the four BRIC countries, three finished down (Brazil, Russia, China) while India was up just 8.98%. Will 2014 be the year where the BRICs make a comeback? We'll get our first data point on Thursday. Happy New Year!
Source: http://www.bespokeinvest.com
Tuesday, 31 December 2013
31-Dec-2013 CSE Trade Summary
Crossings - 31/12/2013 & Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 31/12/2013
Quote for the day
“Good traders know that opportunistic speculation is a process. Ignore any one single outcome, focus on the methodology that can consistently avoid catastrophic losses, manage risk, preserve capital. A good process can be replicated, a random spin of the wheel cannot.” - Barry Ritholtz
Monday, 30 December 2013
30-Dec-2013 CSE Trade Summary
Crossings - 30/12/2013 & Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 30/12/2013
Subscribe to:
Posts (Atom)