MONEY: 12 Cognitive Biases That Endanger Investors

Tuesday, March 19, 2013

Good thing I have a team. Otherwise, I’d be sitting, guarding my “pirate’s chest” of gold coins. I don’t know what bias being a Gold Bug is, but I have it bad. The thieves in DC are robbing us poor folk blind. And, what’s worse, folks are clueless. Argh!

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12 Cognitive Biases That Endanger Investors: “

Before Todd Harrison created Minyanville, he was an options trader at Morgan Stanley, eventually becoming President of Cramer Berkowitz, where he toiled as head trader at Jim Cramer’s hedge fund.

Todd has an excellent analysis of the various biases that endanger investors.

Here is the full list:

1. Confirmation Bias
2. In-Group Bias
3. Gambler’s Fallacy
4. Post-Purchase Rationalization
5. Neglecting Probability
6. Observational Selection Bias
7. Status-Quo Bias
8. Negativity Bias
9. Bandwagon Effect
10. Projection Bias
11. The Current Moment Bias
12. Anchoring Effect

Check out his explanation and descriptions here.

 

 

Source:
12 Cognitive Biases That Endanger Investors
Todd Harrison
Minyanville January 17, 2013
http://www.minyanville.com/special-features/random-thoughts/articles/12-Cognitive-Biases-that-Endanger-Investors/1/17/2013/id/47441

(Via The Big Picture.)

 

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GOLD: Asian gold theft crisis in the UK

Tuesday, February 14, 2012

http://www.guardian.co.uk/uk/2012/jan/31/gold-theft-asian-families

The great Asian gold theft crisis
With its value at a record high, gold has never been more attractive to thieves. Now burglars with metal detectors are targeting the homes of British Asian families for their collections of high-quality ‘Indian gold’ jewellery
Emine Saner        Emine Saner        guardian.co.uk
Tuesday 31 January 2012 15.00 EST

*** begin quote ***

Five weeks ago, she came home one evening to find the door ajar. The downstairs floor of her house was relatively untouched but upstairs the bedrooms had been ransacked – drawers opened, wardrobes emptied, clothes and belongings scattered everywhere. “It was such a huge shock,” she says, sitting on the sofa, her voice breaking slightly. Her husband, Mr Rashid (neither want to give their full names), a big man sitting across the room, shakes his head. “They took it all,” he says.

The thieves who broke into this semi-detached house in Earley, near Reading, stole around £70,000-worth of gold jewellery. To those who are not from a south Asian family, it might seem remarkable to own so much valuable jewellery, but families such as the Rashids (Mr Rashid runs a small business) live in ordinary houses and are not particularly wealthy. Their gold collection – elaborate necklaces, rings, earrings and bangles – is treasure that has been handed down from generations of their families in Pakistan or bought as wedding gifts. It’s our savings, our security, says Mrs Rashid, visibly upset. If, in future, the family needed money, they would have sold some pieces. “It’s like paying a mortgage for 20 years and then having a house worth thousands of pounds afterwards – it’s the same thing with gold,” she says. “Our parents gave it to us, we would have given it to our children, they would have given it to their children,” says her husband. They tried to put their gold in the bank, but “there were no lockers available. Everyone is looking for one.”

*** end quote ***

Camouflage!

You have to not look like a victim. And, make it hard to find.

Crazy that you can’t be secure in your own home.

Tie that back to the UK’s dole, gun laws, and generally tolerant attitude towards crime.

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INTERESTING: Time to nuke Freddy and Fannie!

Thursday, July 1, 2010

http://online.wsj.com/article/SB10001424052748703513604575310383542102668.html?mod=WSJ_hps_sections_realestate

http://goo.gl/O4AQ

CAPITALJUNE 17, 2010
Rethinking Part of the American Dream
By DAVID WESSEL

*** begin quote ***

In hard-hit Las Vegas, nearly 59% of households own their homes, but only 15% to 19% of households own a home in which they have any equity left.

For many, the American dream of home ownership turned into a nightmare of debt and foreclosure. Some people should rent.

As late as the 1930s, a U.S. mortgage was generally a loan for three to five years, at which time the borrower had to pay it off. Then the government fostered the 15-year fixed-rate mortgage—and eventually the 30—and the concept that the homeowner would pay off principal in monthly installments.

*** end quote ***

Argh!

Several thoughts occur to me here:

① 15 to 20% of homes left with the owners having equity? All those senior citizens who bought retirement homes? That’s astounding.

② Talk about malinvestment. (That’s Austrian economics term. See below.) Detroit, Flint, and Gary are destroying houses to avoid providing gooferment services. We as a society have our wealth destroyed by such action. Are there no homeles there?

③ It would seem that the FTC and the TREASURY / FED / SEC could stop this disaster anytime they want to. Regulations of minimum down payment like stock margins. Rules about honest disclosure. Limits on what banks can resell as “securities”. AND, the biggest rule, the originator get stuck with defaults! No more package it and forget it. (But then we’d see just how crappy the economy is. And, how many banks would be insolvent. It’s in the Gooferment’s interest to keep putting lipstick on the is pig. Pucker up! Guess who’s going ot have to kiss it?

④ I remember reading that Freddy and Fannie make the economy more uncompetitive and more “rigid” in that owning a home meant the workforce could not adapt to new opportunities in new locations. A high percentage of folks renting means they can move more quickly. Didn’t the Mayans force migrations by burning the village and forcing them to move hundreds of miles? Is this our modern equvalent?

⑤ Speaking of Freddy and Fannie, I see where bailing them out is going to be the “mother of all bailouts”. Shouldn’t we put them out of their, and our, misery? Time for a Constitutional Amendment banning all GSEs! (Gooferment Sponsored Entities)

⑥ Why don’t we bring back the 30 year Treasury Bond as a method of financing the deficit and easing the pain we are facing? Or is the GOoferment afraid of what that 30 year rate will be?

⑦ On HGTV, there are a lot of home buyers, some first timers, who are buying big ticket homes with nearly nothing down. Several hundred thousand dollar mortgages and they need “mortgage assistance”, seller paid closing costs, and even the tax credits to make the numbers work at all. And, in the cases of two income “families” (i.e., DINKs), one paycheck is completely going to the mortgage. Isn’t that a recipe for default in a job loss scenario?

⑧ Perhaps, it’s time for multi-generational households (i.e., grandma and grandpa buy with their retirement money; mom, dad, and the grandkids bunk in)? Wasn’t that the model before Social Security allowed Grandparents to escape to Florida? Makes the Grandparent able to dodge the nursing home.

⑨ Interesting that the Wall Street Journal paywall isn’t very encompassing.

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http://en.wikipedia.org/wiki/Malinvestment

“Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.”

— John Mills, December 11, 1867, on Credit Cycles and the Origin of Commercial Panics

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GOLDBUG: Never ask a gold bug for comments!

Wednesday, October 21, 2009

http://tslrf.blogspot.com/2009/10/buying-gold.html

Friday, October 16, 2009

Buying Gold?

*** begin quote ***

We may or may not face serious inflation but I would like to hold as much gold as possible either way. It might cost me a couple bucks more for the same thing but worst cast I will just laugh about that when I buy for less in a few months.

Thoughts?

*** end quote ***

Gold — bullion; not “collectibles” — currently has a 10% premium. Silver seems to be about 12%. (Palladium is an “interesting” play; rarer than platinum, but priced 60% below gold?) Unfortunately, that’s a lot of “commission” to pay. (A loan shark’s vig?) In the past it was as low as 2%. A mutual fund with a 10% load would be found unacceptable; why should we treat bullion any different. Hold it for 10 years and it doesn’t feel as bad.

The other consideration is what are your protecting against. In an “orderly” inflation scenario, other investments may “surf” the riding tide of inflation (i.e., real estate; stocks). In a “disorderly” inflation scenario (e.g., hyperinflation like Rwanda or pre-WW2 Germany), then you want the bullion coins in your possession. (Or, where you can get to them in a pinch.)

Bottom line: In hyperinflation, bullion coins will overcome the premium in a heartbeat. But what’s the probability of it happening? Tough call.

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MONEY: Ignore the 5% “rule” at your own financial peril

Thursday, September 17, 2009

http://tinyurl.com/q2c7fp

Tales From Lehman’s Crypt
By LOUISE STORY and LANDON THOMAS Jr.
Published: September 12, 2009

*** begin quote ***

“I spent a long time being very angry,” says Mr. Schaefer, the former Lehman executive turned gas station owner. “Angry for working so hard and doing so much. More importantly, for my family and all the time I was away traveling — the time I put in away from them. Now all that money I earned, the money paid in stock, is gone. I can’t go back and remake it.”

*** and ***

When Lehman closed its origination business, Mr. Linton lost his job. Rich and single, he has pursued a life of leisure since then — sailing in his 37-foot boat, playing jazz trombone and, at the moment, taking a week to learn how to fly Russian fighter jets and gliders in New Mexico. He briefly considered attending culinary school.

Although Lehman laid him off in early 2008, his departure turned out to be a boon for Mr. Linton. Being forced out convinced him to bet against the firm’s stock as a counterweight against the Lehman shares he still owned, which protected him when the stock’s value plummeted. Combined with a well-timed sale of his Manhattan apartment and a stream of income from real estate investments, the moves gave him financial padding that frees him from job worries.

“I have been fortunate to have some nice toys,” he says. “And they are all paid up. It’s a nice situation to be in.”

*** end quote ***

I don’t understand a lot of things.

I didn’t understand how smart people, with dependents, working on Wall Street, don’t have life insurance. 91101 exposed they didn’t.

I don’t understand how these ex-Lehman people, who worked on the Street, have all their portfolios so heavily weighted with Lehman. Guess they never heard of options or derivatives.

I don’t understand a lot of things. Wall Street’s “rules of thumb” have been time-tested. Ignore them at your own peril.

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MONEY: Your Home Is Not An Investment

Wednesday, August 19, 2009

http://www.bargaineering.com/articles/your-home-is-not-an-investment.html

Your Home Is Not An Investment
from Bargaineering.com by Jim

*** begin quote ***

There are many benefits to owning a home and I’m a huge fan of it, but don’t justify buying a home by thinking its home is an investment. It’s not.

It is, however, a place to live, a place to make your own, and a place to make yours. It’s a place to put down roots, a place to raise a family, and a place to grow old in. It’s a place to call your own, it’s just not an investment. It’s a home.

*** end quote ***

Had this discussion a few weeks ago with an OLDER friend and his family. Couldn’t seem to break thru that “rent” was not “lost”. Sigh.

It’s only an investment if you get rent for it.

Frau is enamored with HGTV and all the renovation, vacation, and first time. (I don’t understand how they can ignore labor cost in the renovations. I don’t understand buying an international vacation home for several 100K$; how many times can you go there? I don’t understand first time buyers who exceed their budget consistently.)

It’s only a legacy.

It’s not an ATM like how people were refinancing to get cash out.

Everything is great when the market is going up; down, not so good.

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RANT: ROADS; no longer the third rail

Saturday, August 15, 2009

FROM FACEBOOK

*** begin quote ***

I drove in upstate with a friend of mine whose a libertarian. We saw all the road constructions (quite annoying to be honest) and he stated it’s unfair he needs to pay for any construction to the roads in an area he never drives in. I had no good answer. Thoughts?

*** end quote ***

MY RESPONSE

OK, he’s absolutely correct. THe gooferment one size fits all requires us to pay for stuff we will never ever use. It’s the only entity, with its monopoly on initiation of force, which can require us to pay for what we don’t need, don’t want, can’t use, and a absurdly high price. Roads are the third rail of Libertarian philosophy. Because the sheeple can’t conceive of roads being “done” by anything other than the government. Walt Disney, private home owner associations, and private roads all exist in the “real world”. There needs to be a revolution in our memes. How about selling the interstate to WalMart and UPS? Think they would have construction delaying their paying customers? ROFL! SO why ask me? You know I am a raving little Llibertarian!  

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You expected me to say something different?

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