Author: Taking Care Of My Own Business

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...

Read More

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...

Read More

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...

Read More

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,...

Read More

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...

Read More

My-Current-Trade-Must-Be-A-Winner-Bias

This bias might be at the root of all the other biases that very active traders “enjoy”. Yet, being right has very little to do with making money! The evidence is overwhelming that the more we trade, the worse we would do.  That’s because most trades are just expressions of our delusions, biases, and emotions getting the better of us. Most of us who actively trade stocks are like weekend warriors who try to compete with professional athletes: Not only would we definitely lose, we could also get seriously hurt in the process. Any human trader bold enough to compete against the algorithms of high-frequency and low-latency...

Read More

Hot-cold-empathy gap

Have you ever asked yourself this: How can I control myself when I feel the irresistible need to break my rules about how to invest in the stock market? That question pertains to the “hot-cold-empathy gap”, where we say to ourselves in a calm (= cold) moment: “The level of risk that I want to take is bound on one side by gains of up to 15 percent and on the other, by losses up to 10 percent”. Nevertheless, when we lose 5 percent of our money, we panic (= hot) and we sell everything! When we view such cases, we usually think that the colder, more rational...

Read More

Don’t worry, be …

… Hmm, I don’t know how that header should be completed. Do you?  No? Then, let’s find out together. In my opinion, the standard saying: “Don’t worry, be happy” seems to be too simplified because not only do I doubt that one can be happy all the time, it also would be too exhausting, though a friend of mine did once exclaim jovially: “Worrying works for me! 90% of the things I worry about never happens!” I guess the philosopher Michel De Montaigne got an even better perspective on this topic: “My life has been full of terrible misfortunes most of which never happened.” All in all, I guess that being anything else but worried...

Read More

Can you spare three minutes to read this?

You can? That’s great! Because I would like to share what I recently read about “time pressure” and why it seems to be on the rise in these modern times. Initially, I thought that I knew the answer; the pace of life accelerating, with people working more and relaxing less than they did twenty years ago. At least, that was the impression I got from the mass media. Digging deeper into some research I found however that there is very little evidence that people nowadays work more—and relax less—than they did in earlier decades.  In fact, some of the studies suggest just the...

Read More

Neglect of prior base rates effect

This is the tendency to fail to incorporate prior known probabilities which are pertinent to the decision at hand. Caution: Don’t read on if you are 40 years of age and above! Here’s an interesting question for the rest of you: Why aren’t more young people investing in the stock market? Could it be that you/they are neglecting prior base rates and focusing too much on recent media hyped news about stock market corrections, which are actually insignificant in the long run? And by that ignoring the long term upwards trajectory of all stock markets? Have a look at these statistics: Whoever held shares for a minimum of...

Read More

My Dopamine determines risks of mine

Have you ever wondered why you can become revved up and an exuberant risk taker, when flying high, or hesitant and risk-adverse, when cowering from your losses in the stock market? We have the impression that it is our deliberative mind that makes the most important decisions in our life: where we work, where we live, whom we marry. But contrary to this, biological evidence points toward a decision process in our brain system—the basal ganglia—brain circuits that consciousness cannot access. For a better understanding of this, let’s dive deep into the biology of risky behavior (money, food, and sex). Dopamine the pleasure molecule Buried deep in our mid-brain...

Read More

Why do I blog so much about the brain, biases and thinking errors in context with money and investing?

I am very glad that more and more of you are stopping by the Tacomob-website and I feel specially encouraged by all your positive E-mails. One of the more frequent questions asked has formed the header to this post and there are dozens of answers to it. Here are a few: Because you who reads my blog already know that investing for the long-term is the best thing that you can do with your money. Because there are so many experts out there to explain the technicalities of investing.  And they are much better at it than I ever could be. Because being a genius on paper (after listening...

Read More

ad verecundiam

Have you noticed that we are social creatures who devote a lot of our time to thinking about social ranking? And that a by-product of this obsession is a tendency to blindly trust the claims and ideas of people who rank above us? Perceptions of authority and superiority impress us, they also influence us—whether they are valid or not. Do people in authority in one field, however, have an innate authority to talk about everything they feel like taking about? On top of that, we don’t even require authority to influence us, because as social creatures, we have the tendency to conform with...

Read More

NOW

I realise now that NOW is the only time that exists, although that truth about time took me a while to comprehend. Our life, you see, is about a series of moments in time, but we often live these moments hoping to improve a future moment—to have a better job, to make more money, to be important, to be happy- instead of just enjoying them. I had that plan. But the fact is that this moment—right NOW—is where we create what we call our “future”. All our hopes for the future, and even our memories of the past, can happen only in the present moment.  The NOW is that one point...

Read More

Do you want to predict the future?

I beg your pardon? Did you just answer with a Yes? That is great, because that proves that you are human and/or a human being. Did you know that the human being is the only animal that thinks about the future? We—human beings—think about the future in a way that no other animal can, does, or even has, and this simple ordinary act is a defining feature of our humanity. Our human brain is an “anticipation machine” and “making the future” is the most important thing that it does—our brain was made for “nexting” and that’s what it would do. About 12% of our daily thoughts are about the...

Read More

Like us on Facebook

Follow us on Twitter