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Pragmatic Capitalism

Capital for Living a More Practical Life

‘Behavioral Finance’

The “Tuesday Rally” & Recency Bias….

If there’s one cognitive bias you have to be particularly aware of in the markets, it’s recency bias.  Recency bias is the tendency to believe that what has just recently occurred is likely to form part of a larger future trend.   It’s dangerous, you should become extremely familiar with it, learn from it and… Read More

Being Right Isn’t the Only Thing That Matters

My real expertise is in portfolio construction and understanding the world of saving/investing.  And as I’ve evolved and matured during my career I’ve been forced to become comfortable with one truth: You will be wrong in this business.  A LOT.   That’s just a simple reality.  But those who tend to succeed in this business… Read More

The Economy, The Stock Market & (More) Recency Bias

The stock market has really thrown everyone for a loop again this year.  An article in the NY Times this weekend highlighted the fact that the global economy is very weak while stocks remain relatively strong.  Unfortunately, the article’s conclusion distorts our reality in another classic case of recency bias by comparing the current stock… Read More

Stock Prices, Presidents and Recency Bias

I’m not sure whether to laugh, cry or throw this in the “dataming” bin.   The chart below comes from Lars Christensen’s blog.  It shows the S&P 500 vs the re-election odds of President Obama.  As you can see, the correlation is extremely close.  Now, Mr. Christensen is a market monetarist and they’re pretty fond… Read More

The Power of Fear

If you really want someone to act on something you have to invoke emotion. You have to give them a sense of urgency. If you can invoke emotion you substantially increase the odds that a person will react.  And there are few emotions more powerful than fear.  If you can scare someone you can get… Read More

Recency Bias and Investor Pitfalls…

I’ll make this brief.  I hate the chart below.  It shows a comparison of 2011 vs 2012.  The implication is simple – since the market performed in a certain way in 2011 and this performance somehow correlates with the first 7 months of 2012 then that must mean it’s somehow useful in deciphering how the… Read More

IS THE JUDGMENT OF THE MARKET EVER THE RIGHT ONE?

* This post was written in 2011 before Mr. Roche founded Monetary Realism, which was formed due to several disagreements Mr. Roche and many other former MMT proponents had with the school of thought.  For more info on the difference in views please see here.  For more on MR’s views please see here. Dr. Daniel Kahneman of… Read More