Author: Taking Care Of My Own Business

It’s that time of the year again

It’s that time of the year again when avalanches of New Year’s resolutions are launched with idealistic plans for drastic self-improvement in 2016. We resolve to quit drinking, smoking, or both.  We resolve to help others, and to spend more time with our friends and family.  We resolve to finally get out of debt, and immediately into building up a neat retirement nest egg.  We resolve to make it into the Guinness Book of Records for the most T-Shirts worn at once. We are great planners, but, regrettably, we are experts only at  planning, not on  planning. Why is that? Because we have the tendency to underestimate the amount...

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Diversify, diversify, and then diversify some more

Could we both agree on the following notion? That, in the investment field, there is no one instrument that can perform all the time, and that there is no one who can say with certainty—in advance—which instrument would perform best.  The future is uncertain and markets are random. As such, what Harry Markowitz demonstrated mathematically in 1952 still holds true: Putting all of one’s eggs in one basket is an unacceptably risky strategy, and diversification is the closest an investor can get to having a free lunch. Personally, when I’m in doubt, I always remind myself that I am an investor, not an entrepreneur.  There’s no need for me to put all my eggs in one basket....

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A few thoughts on our second brain

I can literally envision all you regular readers rolling your eyes at yet another “brainy” post and thinking: “Tacomob, haven’t you written more than enough about the brain already?  Isn’t there some other topic on your mind?” Of course there is, and that’s why I am writing about our second brain—the one below our shoulders. Ok, I know that that sounds absurd, but bear with me nonetheless. Can you recall a situation where you were extremely happy, or in love, or both?  And how was that feeling?  Did you have butterflies in the brain, or in the stomach? Situations like these demonstrate that there are processes in the vicinity of our stomach that impact our emotions. But is the gastrointestinal area the only receiver of...

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A bit more of mental accounting

Recently there has been a lively discussion among the Singapore Financial Blogger Scene about ‘Net Worth’ and how it should/could/may be computed (here, here, and here). This showed me how imperfect and susceptible to bias we all are.  We are all in this together facing our cognitive illusions. Let’s check out one common bias known as the Mental Accounting Bias, which is the tendency to value some money less than others. One example of this is the “House Money” effect: In the event that you are gambling at a casino (a highly hypothetical scenario, because readers of financial blogs do know that the casino always...

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25 traits of the perfect stock investor

In the past year—since Tacomob has been up and running—not only have I shared my thoughts on the many biases that make us commit dumb mistakes with our hard-earned money, I have also shared many aspects of what we should not do—in order to safeguard our monetary resources. Thus, I thought it would be a good idea, after all that “negativity”, to share the aspects of what we should do—in order to be successful in investing. So, here are the traits of the perfect stock investor (“Rational Optimism”): (Biases mentioned in brackets are examples of biases that can be surmounted by each respective trait) 1) Able to sit quietly—alone—in...

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Another competitive edge of introverts

Do you know what is the central element of good decision-making? It is actually one’s ability to manage delay. Yes, our ability to think about delay is a central part of the human condition and it’s a gift, a tool that we can—and should—use to examine our lives. Life might be a race against time—at least that’s how it’s perceived by many—but it’s enriched when we rise above our instincts and stop the clock to process—and understand what we are doing and the reasons behind them. Because, like it or not, it would seem that the essence of intelligence is knowing when to think and act quickly, and when to think and act...

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Are you a ‘kicker’ too?

Have you ever had—while driving—that extraordinary experience where anyone driving slower than you is an idiot, while anyone driving faster is a maniac? That, my dear reader, is an example of the Correspondence Bias in full-blown action. Generally, this bias refers to the tendency to infer that people’s behavior corresponds mainly to their personality, despite their behavior being explainable by the situations in which they occur. In other words, we tend to see a far too direct correlation between people’s actions and their personalities. We wrongly assume that a person’s action is based more on what “kind” of person he/she is—rather than the social and environmental...

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Gentle Reminder of the Disposition Effect

A few weeks ago, I wrote herewithin about a natural phenomenon: When things go well, we tend to ascribe our success to our abilities—our disposition.  But when they go wrong, we tend to blame external factors—our situation. Finished.  Done.  Quick conclusion.  Move on. But wait a minute…could it be that that ‘quick conclusion’ was made at a time where we got tired of thinking? That type of quick conclusions means that not only are we unlikely to accurately assess our on-going level of ignorance, we are also unlikely to develop the appropriate methods to deals with it.  Hence, we’d never learn very much. So, if it’s luck rather...

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This happens to everyone of us

Ageing, that is. Humans have two things in common: We have a biased brain, and we grow older. Unfortunately, the fear of ageing these days is rampant, because we fear what we will become. My Claim “Being old is much better than you think.” Now, I’m not saying that because I am old; in truth, I am still young, having started on the second half of my life.  Thus, I cannot claim “having been there, done that” as yet. I came to that conclusion after reading about and listening to quotes from the people who have already been there and done that—those “age-experienced”—and have observed that growing older is...

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A little bit more information for you? No, thanks, I got plenty already.

In psychology, there is the term “Information Bias” which is the tendency to seek information when it doesn’t affect our actions. Nevertheless, more information isn’t always better. The instinctual shortcut that we take when we have “too much information” is to engage with it selectively—picking out the parts that we like—while ignoring the remainder.  In truth, that’s dangerous! How so? Because we tend to focus on those parts that narrates the world as we would like it to be instead of how it really is.  Thus, we ignore the risks that are the hardest to measure, even when they pose...

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The Seer-Sucker Illusion

“Imagine you pick 1 million random people from around the world every day,” said Toby McDade, chief investment officer of Momentum Fee Capital Management. “Some days, 51% would be in a good mood, 49% in a bad mood.  The next day, maybe it’s the opposite.  Other days, random chance could mean 8% of people are really pissed off for no real reason.  This is basically what the stock-market is on a day-to-day basis.” Asked what his clients thought of this view, Mr. McDade laughed. “Oh my God, you think I could tell my clients that?  How could I justify...

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5 Lessons from history to ditch the Ignoring-History-Bias

I  blogged about our deficits in predicting the future the other day and mentioned not only our tendency to compare the present to the past, but also how we tend to get history wrong—by neglecting the impact that accidents and chance had on them. Isn’t our place in history today the result of circumstances that no one foresaw, nor could have foreseen? Isn’t it that when we look at history for lessons about the future we’re only looking at a single snapshot of what could have been?  Because our history is a contingent fact – it is what it is, but could easily have been different. So, should we disregard learning...

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Why do we misbehave so often?

According to economists, we should all be cold, clear-eyed spenders who always choose what would benefit us the most economically. In their economists’ world, we are all as emotionless, passionless, and predictable as the Vulcan Mr. Spock in Star Trek, since we are supposedly programmed to aim for equilibrium and uniformity. Still, do you know anyone (yourself included) who behaves that way, every time, and all the time? I personally have not met that perpetual rational person—that Homo Economicus, or Econ—as yet. In reality, we (e.g. me) are not always logical or consistent, nor do we behave in the manner that gives us the best bang for our bucks.  Instead, we misbehave.   Now...

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Who can I blame for this?

Here is a bit of philosophy to assist in rapidly finding someone (else) to blame : “Huey, Dewey and Louie.  You stand accused of a grievous crime.  What do you have to say for yourselves?” “Yes, I did it,” said Huey.  “But it wasn’t my fault.  I consulted a financial expert at my bank and she told me that was what I ought to do.  So don’t blame me, blame her.” “I too did it,” said Dewey.  “But it wasn’t my fault.  I consulted a famous blogger and he told me that was what I ought to do.  So don’t blame me,...

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1 Mwh of sunshine

“A day without sunshine is like, you know, night.” — Steve Martin I personally prefer sunshine (though perhaps with less heat here in Singapore), because, since early August this year, we are the proud owners of a Solar or Photovoltaic (PV) System at our house. Fellow blogger Singvestor.com recently wrote a great post on energy savings (Hunting Vampires 18 Aug 2015 http://singvestor.com/hunting-some-vampires-in-my-house/), and then encouraged me to share my experiences with our Photovoltaic System. But before I dive into that, I would like to share some curious facts about the one and only in the center of our Solar System: 1) The sun’s diameter is...

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