Author: Taking Care Of My Own Business

Economic Forecast Illusion or why “Economist” is one of the worst professions one could choose – Long Version

In my last post I mused over Forecasts and those guys who come up with them.  In my little research I came across so many noteworthy facts and statements on that subject that I decided to collate them in a separate post. Here we go, some 32 randomly listed observations on why Economists have a tough stand: 1) No Economist has ever convincingly explained why a normal economy has to go through booms and busts with recessions and occasional depressions, causing great harm to its people. 2) Economists’ failure to embrace the new science of complexity goes some way towards explaining...

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Economic Forecast Illusion or why “Economist” is one of the worst professions one could choose

Two recent events triggered me to do a bit of research. My son – having started Secondary Level 4 a few days back – asked me which job would be the best and whether he should target the Junior College or Polytechnic as his next step on the educational ladder. I saw multiple headlines in print and online media about Economic Forecasts for 2017 and sometimes even beyond. So, have you ever wondered why Economists work so hard—to analyze data and to churn out forecast after forecast—on future economic developments? Why then, assuming they believe their own forecast, don’t they get some funds (cheap...

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New year, new start, same old, but still the most accurate stock market forecast for 2017

At the beginning of each year, there are many pundits, experts, self-proclaimed gurus, and other suspicious characters who’d like to sell you stuff predicting the directions of the Stock Markets. As I personally have ample years of experience in the Stock Markets (and thus know for sure what’s going on),  I did get asked—by my three friends and my one wife—about my take on 2017. So after thorough research, I am absolutely confident about the high probability of my forecast. Here it is: In the next 12 months, the US-stocks will go up and they will go down.  As...

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Have you decided yet?

This post is for you.  Yes, you, who sent me that e-mail yesterday asking me whether it would be a good timing to start investing in the stock market right now. I understood from your mail that you have not started to invest anything in the stock market.  All savings are in FD and you are – figuratively spoken – sitting on the fence waiting to deploy your savings into the “risky stock market” or maybe not. I believe this is a common scenario for many (most of them unfortunately being also non-readers of financial blogs; but that is...

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The only certainty is …

… that there is no certainty (ok, I admit death is the only thing we can know with any certainty, but my intention is not to write about the end here, I have done that before and it didn’t end too well). Nevertheless, we suffer from the Certainty Bias.  Our mind’s pull for certainty has different consequences.  The mind likes nice, uncomplicated beliefs which can help us make sense of a situation.   Yet these beliefs often leave us trapped by our own – often false – perceptions. Uncertainty is great.  Uncertainty comes in the form of a chance...

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100 Biases and Bias Bias

einhundert – 100 – one hundred The other day I have shared with you this gigantic Cognitive Bias Codex.  It contains 189 different biases.  So far I have written about 100 biases that make you do dumb things with your money.  So, bear with me.  I am merely half way there in gathering awareness about those hidden flaws in my own thinking. Anyhow, this 100-milestone justifies – in my biased eyes – a revisit of my personal Top Bias: Bias Bias is the stubborn belief that we are less biased than we really are. Everyone is prone to cognitive...

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Familiarity Bias vs. Ambiguity Effect

Or otherwise known as reliance on old-fashioned financial institutions and outdated economic structures.  Partly, it is due to habit; partly, because of our concerns about liquidity; and partly, because we think that it is always risky to experiment with new things where we might lack information (“ambiguity”). We seem to want to persist in using the tried financial technology that was used by our grandparents—Savings & Fixed Deposits—even though there may be memories of major economic dislocations in your grandparents’ times. Strangely, we are very happy to adopt the newest smart phones, the latest kind of computers or automotive technology.  We do see rapid...

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Fading Affect Bias

Among the many quirks our brains have is something called the “fading affect bias.”  Basically, we aren’t very good at remembering negative emotions.  Our brains shrink the memories of bad times, painful experiences and anything generally unpleasant. That is generally a good thing. But could it be that we carry this bias into our portfolios as well. That is generally a dangerous thing. Two main ways this bias can lead us astray ONE: The fading affect bias (and its cousin, optimism bias) promotes speculation. Imagine you speculate on a high-flying small cap green-tech stock and it gets obliterated.  If you...

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Cognitive-Biases-Life-Hack

Emotions are the main cause and driving force in the stock markets. Last week I shared some thoughts why understanding our mind as a tool that tries to live in an uncertain world is an important challenge. Because the brain hums away invisibly in the background, we tend to overlook its contribution and take it for granted.  Misunderstanding the working of our own mind does not, thankfully, prevent the mind from doing its work.  Making errors about the inside of our head doesn’t change what’s there. And that mind of ours tricks us all of the time. We are...

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Are you investing/trading like a scientist or like a lawyer?

Before you read on, take a minute and think about this question for a while. Look back at your recent transactions. How did you arrive at those decisions? Are you happy with your past decisions? Any regrets? C’mon.  If you’ve never yelled “How could I have been such an idiot?” at yourself in a fury, you are not an investor and certainly not a trader. Now back to my headline question: My take is, you would like to belief that you invest like a scientist. Purely interested in objective facts drawing logical conclusions from them.  You might even have...

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A trip to Lake Wobegone

This trip is for the stock traders among you. What kind of annual return are you aiming for? 30% or 20% or 10%? What’s your number? Humans, and especially those of the male persuasion, have a bias called The Lake Wobegone Effect.  They have the tendency to overestimate one’s own abilities resulting in unrealistic expectations.  It is named after the fictional town created by Garrison Keillor, where “all the women are strong, all the men are good looking, and all the children are above average.” That combination of overconfidence and misplaced expectations are a killer in the markets. Consequently,...

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Without this you will never achieve Financial Freedom

Enoughism* You have to find, define and fix your personal level of ENOUGH.  Where you possess everything you need, and buying more would actually make you worse off. In my most recent post I have brought up the crucial question: “How much do I need to lead a life that is meaningful, purposeful, and joyful?” Once you have answered that question for yourself, documented it and then never change those goal posts in the future, you have set your sights on achieving Financial Freedom.  This implies if you can’t answer that question for yourself you will never ever achieve...

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Not-Invented-Here-Bias

Last week I wrote about expensive Mutual Funds / Unit Trusts and their cheaper (and better) alternatives called Exchange Traded Funds (ETFs). You still don’t buy it. Ok, that might be my fault because I am simply not convincing enough that passive, systematic, repeatable investment strategies are the best option for the majority of investors. Or, maybe you could be suffering from the “Not-Invented-Here-Bias”: Someone tells you that a Regular Savings Plan in a few broad based and diversified INDEX Funds (not one of those underperforming overcharging Mutual Funds or Unit Trusts, but an ETF) is a sure thing in...

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The stuff that could make all the difference in your Mutual Funds

Fees and Expenses. Investors in mutual funds incur two primary kinds of expenses and fees: Fund expenses and loads.  Whereas fund expenses are paid indirectly from fund assets throughout the year, sales loads are one-time fees that investors pay either at the time of purchase or when units are redeemed. Take a deep breath and let’s go for a deep-dive into those expenses Fund expenses cover operating expenses and fees, whereas sales loads are one-time charges and may either be front or back end sales charges. The US Securities and Exchange Commission (SEC) summarizes the regular fund operating expenses by enlisting these fees into the category: Investment Advisory...

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Can you afford to ignore the long-term importance of money?

“Oh, money,  I’m actually not interested in money.”  So many people say that. Yet they’ll work at a job for eight hours or more (that they don’t even like) just to be able to buy stuff to impress their neighbours, the Tans and Lees (who they don’t really like either), who might be buried in debt—from trying so hard to impress them. Many of you hate financial education.  You think it’s confusing.  You don’t want anything to do with it.  Nevertheless, you love money (when you have it).  Still, you see no irony in this. The way out of the rat race: Do learn as much as possible about how money works, so that you do not have to spend your entire...

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