Seasonally Affective Investing Disorder

Not Not Die Out

Behavioral bias occurs in all sorts of odd ways, but basically can be traced back through evolutionary history to when humanity’s survival depended on deep co-operation and the invention of sewing.  Our ability to cope with the huge changes in weather conditions experienced over our short history defines our species: we didn’t go extinct.

It shouldn’t therefore be particularly surprising that we’re unconsciously affected by environmental conditions: there was a time, not so long ago, when nothing else mattered.  Now, cosseted by central heating and air conditioning, we’re remote from our material world but, it turns out, for investors our material world is not remote from us.

Read Full Post >>

A Bias For Real-Estate

Mindblowing Mentality

The evidence for stockmarket investor bias is overwhelming. We are so not rational when it comes to our stocks that the thought that there are still researchers out there trying to develop theories based on the idea that we actually think through what we do is somewhat mindblowing. 

However, you’d expect that if we’re strangely biased when it comes to financial transactions involving the stockmarket that we might also be a bit slanty-brained when it comes to other asset classes as well.  And as real-estate is probably the biggest single investment any of us will ever make it’s probably a prime candidate for a bit of behavioral analysis.

Read Full Post >>

Regulatory Omniscience is A Fictional Conceit

Who Guards The Guards?

If you’re a regulator you’re likely to be conditioned by motivated reasoning: you should want more stringent regulation because, after all, that’s what you get paid to do.  You’ll base the need for more rules on reasoned analysis, but your analysis will be directed by your incentives.

Regulators are human; ergo, they’re subject to behavioural bias. Quis custodiet ipsos custodes?

Read Full Post >>

Keynesian Investing: Changing Facts, Changing Minds

Changing His Mind

David Chambers and Elroy Dimson have published a wonderful paper on Keynes the Stock Market Investor, which analyses John Maynard Keynes’ remarkable investment record as the effective Chief Investment Officer of Kings College Cambridge over a period of a quarter of a century.  It’s a fascinating insight into the evolution of one individual from underperforming, overconfident, macro-based and behaviorally biased to an outperforming, realistic, stockpicking rationalist. 

That this journey happens to have been made by one the last century’s most famous economists, and that it flies in the face of much of his own macroeconomic theory merely adds piquancy.  The lessons, though, are applicable for any investor, whether genius or not.

Read Full Post >>