Author: Taking Care Of My Own Business

Greed or need?

A few days back I wrote about “Am I saving enough?” Thank you for all your comments.  I am just afraid that those people with their benchmark savings ratios are not really representative of the regular guys. Could it be that those who do save much less right now did not dare to comment at all? And would you consider those with more than 50% savings as “greedy for retirement”? The harsh truth is that the most important drivers in the growth of your assets are how much you save and – above all else – time.  And saving requires...

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Am I saving enough?

Quick question: Would it be easier for you to save 20% of your monthly income, or to live on 80% of your monthly income? In case you answered, “Save 20%,”  you are just average (sorry for being so blunt) and might be suffering from the Loss Aversion Bias. In case you answered, “Live on 80%,” you belong to the vast majority of people who took part in that survey. In case you answered, “Neither,” it is time for you to crack your head and find ways to save more for retirement. In case you answered, “Hold on, both options are exactly the same,” you are...

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The Backfire Effect

We all have a preferential set of intuitions, feelings, and ideas. Less poetically characterized by the term “bias”. These little quirks in our thinking pose a challenge to our ability to weigh evidence accurately to arrive at truth.  Bias is that fat thumb that experience puts on the scale. Bias is an intuition – a sensitivity, a receptiveness – that acts as a lens or filter on all our perceptions. As it happens we have at our disposal an immeasurable assortment of biases, and their combination in each of us is as unique as a fingerprint.  These biases mediate...

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Who is weird?

The other day I met some new people.  After exchanging the usual conversational stuff we got to the big question: “What do you do?’ I described in vivid pictures how I have been taking care of my own business, my early ‘retirement’ from corporate duty and my goal to finance all my expenses from dividends and capital appreciation of my investment and trading portfolios. I got that look from them that said “you are weird”.  Their message was clearly heard even though there were no words uttered accompanying their looks (they were so polite).  They – however – quickly...

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The Well-Travelled Road Bias

Nowadays I am a bit more on the road visiting prospects to share with them those benefits my value-add-products could deliver to their operations.  As such I come across this common experience for motorists more frequently: I am driving somewhere new and I am running a tad late. As I drive down unfamiliar roads it seems that everything is conspiring against me: other cars, the road-layout, the traffic lights and even suicidal scooters on their physics-defying machines. I know it’s only a few more kilometers, but it seems to be taking forever.  Too lo-o-o-ng.  Way too lo-o-o-o-o-ng. What’s going...

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8 Truths I do like to remind myself of

Busy schedules and weekly routines have a tendency to put my brain on autopilot and I lose sight of the important things in life. Some of life’s essential truths need repeating.  So, I’d better write them down: MY SELF-WORTH MUST COME FROM WITHIN When our sense of pleasure and satisfaction are derived from comparing ourselves to others, we are no longer the master of our own destiny.  When we feel good about something that we’ve done, we must not allow anyone’s opinions to take that away from us.  Make myself feel proud. While it’s impossible to turn off my...

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It happened again – Self-enhancing transmission bias

I caught myself again yesterday.  I was having coffee with an ex-colleague of mine.  Back from the phase in my life when I was doing my ‘corporate duty’.  I do like to occasionally check in with my ex-colleagues to see whether the corporate life has improved since I had left three years ago.  And it … But I am digressing. Anyway, my colleague asked me how my life as an investor (and occasional trader) is going.  Absentmindedly I shared some of my successful trades.  And that was it! I only shared my wins and did not mention any of...

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How I learned about the stock markets – going way back in time

The other day I was reminiscing about two epiphanies that influenced my choices in life. So back in those days I wanted to be independent.  And I figured the best means to independence is money.  Not for the sake of being rich.  I don’t have to be rich but, rather, independent. During my juvenile-delinquency-days back in Germany there was a prominent stock market guru who influenced my first steps into the stock markets. His name was André Kostolany. Anybody heard of this chap before?  I guess he is not so well known in the English speaking world as most...

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How I learned to mind my own business

Some of my loyal readers – ok, make that two – asked me at what age I started to mind my own business and to actively take care of my own business. Here is how it all started: Well, that’s not really how it happened. This is what happened: I experienced two epiphanies in my early stages of my professional life. The first one occurred in my mid twenties. My boss, who I looked up to because of his strong job dedication, disclosed to me that he got retrenched.  His position was ‘made redundant’.  I could see the huge...

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Why ETFs are a good tool to slaughter some of our biases

Being biased brings with it that we don’t think like we think we think.  We make illogical decisions. Passive index fund investing via a Regular Savings Plan or Dollar-Cost-Averaging is logically right, right? But emotionally and in terms of common sense, it often feels wrong. I do believe it’s worth remembering now and then just how strange it actually is.  I get this feeling particularly when trying to persuade others to the cause during the recent market downturn. Perhaps it’s also worth feeling just a smidgen of pride at circumventing your human emotions and apparent common sense to make...

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How much does money matter to you?

There is no denying the fact that our lives are determined by our unconscious beliefs about money. So what do you really believe when it comes to money? I am convinced that discovering and exploring your general attitude towards money is an essential step in improving your financial health. And to help all of us in that challenging self-awareness process the profession of psychologists comes to our rescue.  They are experts in creating simple tests which provide deep answers.  Ok, I am a tiny bit sarcastic here.  Nevertheless taking those tests is always a helpful step towards  self-awareness. I...

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The Ostrich Effect

I initially wanted to put off writing about this fallacy, but I cannot avoid it. Psychologists use this term to describe the decision to ignore dangerous or negative information by “burying” one’s head in the sand—like an ostrich—and hoping it would disappear. The ostrich effect is one of the most ominous of fallacies, since it is the belief that things can be kept static by inaction. But making errors about the inside of our head does not change what is inside it. Everything is in motion.  Change is the law.  Stability and consistency are illusions.  When we want things to stay the same, we will...

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Let’s regress to the mean together

…but before we do that, allow me to elaborate a bit on it. Regression to the Mean (RTM) is the tendency for trends to flip with the passage of time; it’s nature’s way of levelling the playing field.  Most things on Earth revert to the mean over time and this includes investing as well. It means that whenever you hope that a very high investment return would continue, the odds would be overwhelmingly against you. I, personally, always want to consider the statistical phenomenon RTM as a possible cause of an observed change in my decision making process. Admittedly, that’s easier said than done, since our mind...

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The single largest risk to investors in today’s markets

…is themselves. That’s right, the single largest risk to investors is themselves. By that, I, of course, mean the influence of human emotion and psychology in decision making. It seems quite clear to me that humans are uniquely wired incorrectly for long-term investment success. When asset prices double, we want those assets twice as bad, but when asset prices drop in half, we want nothing to do with them. This intuitive behaviour, inherited from our ancestors, is a disadvantage in the modern world. We call far too many cognitive biases our own.  In this case, however, more doesn’t equal better.  They’re merely a...

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New year, new start, same old, but still the most accurate stock market forecast for 2016

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 know for sure what’s going on),  I did get asked—by my three friends and my one wife—about my take on 2016. 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 will...

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