Firstly a great big thanks to Ms Ana Wang for filling in for me: a hectic schedule, a touch of flu and a bout of mild food poisoning all led to my delegating the blog to Ana. As usual, she did an exemplary job. Thanks Ana!
The ShareInvestor event in Singapore, “The Market Outlook for the Year 2009“, provided me with an opportunity to reflect on some of the barriers to market success.
Last year, this sort of event would have attracted at least 400 attendees. This year we had half that number. It reminded me of Nassim Taleb’s dictum in “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets“: some confuse being lucky with being good. He wrote that when making the point that under the appropriate conditions, some confuse luck (profits derived from a raging bull market) with superior profit-making ability.
But the corollary is that in a raging bull market, we at least have the opportunity to earn profits - given the nature of the market. Under those conditions, traders seem to flock to any form of education that promises to bring them success without effort. And under those conditions, they have some chance of being lucky and hence achieving the dream.
Under present conditions, market conditions reduce the role of luck, and thus make education essential to success. Now, under these conditions, the very traders that ought to be securing an education, stay away from quality events. If they are young enough, undoubtedly in the next bull market, they’ll again come out in droves to try their luck. A pity - since they have enough time now to lay a solid foundation in preparation for the next bull market.
The Singapore event also allowed me to witness first-hand the insidiousness of the bias of anchoring - another barrier to success. Usually investors/traders anchor their entry point: they determine their exit strategy based on whether or not they’ll break even - rather than determining their exit strategy on whether or not the probabilities still favour the trade.
In this case, the anchor was of a different nature; but the principles remain the same.
I was approached by a number of attendees enquiring if I’d be willing to charge them this year’s S$400.00 fee for my August 2009, 2-day seminar. At the presentation I had announced that the 2009 fee would be S$850.00, up from 2008’s S$400.00.
I explained that the lower 2008 prices were possible because of voluntary labour - labour that will not be available in 2009. I also pointed that S$850.00 for the 2-day event is still 66% to 80% below prices of comparable seminars. (For my US readers, S$850.00 is about US$560.00 at the current rate of exchange).
The potential attendees could not see past the increase of 100% in the fees. They did not enquire about the content nor did they enquire about the benefits. Like the entry-price anchor, their decision was not based on whether or not the probabilities favoured the purchase, but rather, whether or not they would break even (i.e. secure last year’s price).
The ShareInvestor seminar brought home to me just how important it is that we adopt a decision-making process that allows us to secure the advantages of heuristics and at the same time allows us a flexible enough mindset to process new information without bias.
By the way, if you have not already done this, do download this e-book: The Psychology of Intelligence Analysis. Written for the CIA, it is by far and away the best book I have read on decision-making and it’s free!
Finally for those awaiting the video on 30-Year Bonds, it will be out tomorrow.
Refer this blog post to a friend or colleague…
