Hi Guys,
I just read “An Honest Stock Market Update” article by the Motley Fool’s Morgan Housel. Housel is a very serious financial writer. In this instance, his current work is a satire, but with real world implications. Here is the Link to the short piece:
http://www.fool.com/investing/general/2014/08/12/an-honest-stock-market-update.aspx?source=iaasitlnk0000003I’m sure you will appreciate and enjoy its dark-side humor. Folks always seem to need a plausible explanation for an event even when such a surefire explanation simply does not exist. Things just happen. The article does expose several semi-serious human tendencies and foibles.
I find it astonishing that financial writers cluster their topics so frequently; this is one such example. Is it a haphazard happenstance or is there a more insidious explanation? Probably neither reason fully explains these occurrences.
I suspect these writers read each other daily, conclude that some introduced topics likely share a wide common audience, and, consequently, these secondary writers have opinions on the matter that demand a public airing. In that sense, these recent plethora of articles on this same subject are somewhat incestuous.
The deeper implications of the referenced piece is easily coupled to the “Three Questions” issue that was explored in an earlier set of MFO postings. Here is the MFO Internal Link to those exchanges:
http://www.mutualfundobserver.com:80/discuss/discussion/14993/jonathan-clements-keeping-your-portfolio-on-track-for-the-long-termBoth Jonathan Clements and Ken Fisher incorporated a “what you think you know about investing that isn’t necessarily so” as an integral part of their three critical investment question guidelines.
As investors, we’re all a little guilty of selective data gathering and biased interpretations of those data. We tend to emphasize those data sources that reaffirm our predisposed investment positions, and we often tend to ignore contrary evidence. We do so as an unrecognized bias, and, in so doing, put our portfolios at unwarranted risk with this asymmetric way at completing market research. This is surely not a new or even a surprising discovery. But we pay a price for this natural characteristic.
Behavioral researcher Thomas Gilovich examined these partialities several decades ago. His early book titled “How We Know What Isn’t So” is very informative on the subject and is a fun read. The subtitle of the book is “The Fallibility of Human Reason in Everyday Life”. I recommend you all give it a try. It just might make you a more balanced and informed investor.
I wish you all better investment outcomes.
Best Regards.
Comments
I do believe that that is the most succinct explanation of 95% of what we hear and read that I have ever heard, or ever will hear.