45. Strategy and bias in stock trading

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Still on the stockmarket and its randomness, I am reminded of a conversation I had no long ago with a big time market trader who was trying to understand the potential impacts of coronavirus to finetune his investment strategy. This, of course, is a pretty hopeless aim, which is brought about by the illusion that previous investment strategies yielded returns. The chances are that some beat the market, whilst others underperformed it. The illusion is born from bias, traders (as well as politicians, business people and the public, to name just a few) are much happier to take ownership of their successes than of their failures. Success is put down to strategy, failure to unforeseen circumstance. This ego building may be necessary to survive in the city, but it is not a good counsellor to devise future strategy. Danny Kahneman and Amos Tversky wrote extensively about biases, and you could waste your time in much more unproductive and less entertaining ways than reading some of their work

Length: 999 characters 
Location: Hereford, UK

Comments

Sandra K. said…
A very interesting Twitteretter on bias and stock markets, an ownership of success but not failure. These days owning failure is rare even though essential for a learning curve. I wonder whether one learns without any acknowledgment of mistakes...
May 10, 2020 at 9:38 AM
SantiDominguezV said…
Mistakes and failures are the best way to learn, although of course, successes can teach you some things too. It is a fact that you see people externalising favour a lot omre than you see them externalising success, and a lot of learning opportunities are lost as a result. In general, performance improves with self-criticism (the same applies to exceptional sports performance, for example)
May 11, 2020 at 8:43 AM
SantiDominguezV said…
that should be externalising failure, not favour... that is something else, as illustrated by The Godfather, who used favours to great effect...
May 12, 2020 at 4:58 AM
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