Monday, May 27, 2019

Coffee Break: Avoiding Stupidity

Jim Parker, from DFA Australia Limited, shares some more useful insights and links:

Dimensional - Coffee Break with Jim Parker
Coffee Break: Avoiding Stupidity
It’s often overlooked, but the difference between having a successful investment experience and an unsuccessful one often comes down not so much to acts of brilliance but to avoiding acts of stupidity.
Coffee Break this week, drawing on the findings of behavioural finance, looks at why simple discipline and avoiding rash decisions can be so important to improving your chances of a good investment outcome.
Share on LinkedIn
Share on Facebook
One of the most popular quotes from Charlie Munger, the long-term partner of legendary investor Warren Buffett, is that it is remarkable how much advantage he and Buffett have achieved by consistently trying not to be stupid instead of seeking to be smart. This article from the blog Farnam St explains the difference.
Share on Twitter
It’s nice to be brilliant, but often the best thing you can do as an investor is just avoiding doing stupid things. http://bit.ly/2M0obiZ

Share on LinkedIn
Share on Facebook
Feelings and hunches are usually not a good guide to long-term investment decisions. We tend to over-rate our own competence and give too much weight to recent events. This blog post from Psychology Today lists eight common behavioural biases behind dumb money decisions.
Share on Twitter
Why do smart people make dumb mistakes with their money? Here are eight common behavioural biases. http://bit.ly/2WrHu9e

Share on LinkedIn
Share on Facebook
Although markets are awash with randomness, there are vital and often simple cues that investors choose to ignore. A common one is overlooking signal for noise. In other words, people get distracted by headlines and miss the long-term returns available through discipline. Here are eight reasons stupidity is so common.
Share on Twitter
What are the major factors driving stupid investment decisions? Here are eight common reasons people go astray. http://bit.ly/2HTcatN
This section may provide links to the sites of independent third parties which contain information, articles and other material prepared by persons who are not employees or representatives of DFA Australia. These links are for your convenience only. These third parties are not affiliated with DFA Australia, and DFA Australia does not control or endorse and is not responsible for any information, opinions, representations or offers on these linked sites. DFA Australia is not responsible for the contents or accuracy of this material, and the opinions expressed in this material should not be taken to be the opinions of DFA Australia.


Monday, January 14, 2019

Coffee Break: The Crystal Ball Fallacy

Jim Parker, from DFA Australia Limited, shares some more wonderful insights and links:

As a new year begins, the financial media typically is full of speculative commentary about what the coming 12 months will hold for markets. The assumption underlying this content is that someone, somewhere has a reliable crystal ball.

The truth, however, is that everyone is guessing. A few guesses turn out to be right. Most turn out to be wrong. And that’s because those making these forecasts fail to account for the random nature of events. Ultimately, it’s not a good way to invest.


Wrong, Random or Worse
Share on LinkedIn
Share on Facebook
Everywhere you look at this time of the year, someone is telling you what stocks to buy in 2019, the chances of a recession, the likely path of interest rates and what will happen to currencies. These forecasts are really guesses and are often just a pitch to get you to trade. In fact, Barry Ritholtz sees forecasting as an exercise in futility.
Share on TwitterThe problem with market forecasts goes beyond their inaccuracy. The real issue is their failure to recognise the randomness of the world. https://bloom.bg/2QBfQUf
The Market in Fear
Share on LinkedIn
Share on Facebook
Have you noticed how much media commentary about the market outlook is gloomy? We’re told to brace for everything from meltdowns to depression. Part of this is economic, as research shows human beings are wired to give greater weight to bad news than good. This means there’s an in-built market for fear.
Share on TwitterOur in-built loss aversion makes us more likely to click on bad news headlines. Keep that in mind when you are confronted with 2019 ‘outlooks’. http://bit.ly/2RzZsDV
Separating Noise from Signal
Share on LinkedIn
Share on Facebook
So much media commentary around markets is just noise. For example, at the start of every year you’ll see articles saying it’s now “a climate for stock pickers” or that “the rules have changed”. Veteran investor and fund manager David Booth has heard it all and provides a refreshing perspective on market forecasting.
Share on TwitterMarket forecasts are ubiquitous around this time. But this veteran fund manager says most are just noise designed to get you to trade. http://bit.ly/2REnm1e

DFA Australia Limited 

This section may provide links to the sites of independent third parties which contain information, articles and other material prepared by persons who are not employees or representatives of DFA Australia. These links are for your convenience only. These third parties are not affiliated with DFA Australia, and DFA Australia does not control or endorse and is not responsible for any information, opinions, representations or offers on these linked sites. DFA Australia is not responsible for the contents or accuracy of this material, and the opinions expressed in this material should not be taken to be the opinions of DFA Australia.