Monday, November 25, 2013

Mind over Matter -

Interesting Links from the web, from Jim Parker's Coffee Break newsletter. This week Jim observes that:

...when asked what makes a good investment, say they “just know”. They have a gut feel. 
Our tendency to equate exterior confidence with being right about a subject is the theme of this week’s Coffee Break. Put simply, we are very good at fooling ourselves about our investment skill.

According to Nobel Prize-winning psychologist Daniel Kahneman, human beings have two ways of thinking. System 1 is fast, intuitive and emotional. System 2 is slower, deliberative and logical. There are times when System 1 makes sense, like in choosing a piece of music to listen to. But in the world of investment, fast-thinking can be our enemy. This video explains.

Our biggest enemy in the world of money and investing is often ourselves. We exhibit what psychologists call “biases”. Among them is over-confidence, a view that we are more astute investors than everybody else. Another one is that we are typically more sensitive to potential losses than we are to gains. This article describes a few ways we fool ourselves.

We’re wired to think we can “do better” than what the market offers. That’s fine, but the record shows most investors end up with significantly less. And the gap between the market and our actual returns is often due to our own behaviour. In this short video, communicator Carl Richards shows how we can often stand in our own way.

Jim Parker, Vice President, DFA Australia Limited

Monday, November 11, 2013

Keep it Simple

From Jim Parker, VP, DFA Australia LTD

Interesting Links from the Web

In most areas of life, the harder we try and the more work we put in, the better the result. Success as a long-term investor is different.

Generally, in this area, the closer you study the form guide and the more active you are in monitoring your portfolio, the lesser your chances of success. So in this week we celebrate the virtues of simplicity.

These articles that reinforce a patient, disciplined approach to money.

This is a story of two individuals—one a poorly educated orphan who lived simply, bought a few stocks in her youth and then forgot about them; the other was a highly credentialed MBA, active investor and finance executive. Their respective investment outcomes tell us a lot about the link between advanced financial education and investment outcomes.

We’re overloaded with information in our lives. How are we supposed to keep up with it all? The simple answer is we shouldn’t even bother trying. Following the news is fine, but acting on headlines often leads us to responding to stale information. Better to focus on the underlying signal and ignore the noise. This article tells you how.

Legendary investor Warren Buffett has a way of cutting through much of the technical claptrap around investing to the underlying truths. In this article, the Berkshire Hathaway chairman boils down his accumulated wisdom to three simple ideas that anyone can apply.