45. Strategy and bias in stock trading
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 ...