Investing Like Geoffrey Boycott

Investors are very bad at forecasting political events.  This is well-known to me after many years of trying.  It is discussed in a good recent article in The Economist:

https://www.economist.com/news/finance-and-economics/21726084-wishful-thinking-may-lead-them-astray-investors-are-not-great-predicting

For example, they — and I include myself in this — were wrong about all of the following events.

  • The election of Trump
  • The effects that election would have on markets
  • Whether Trump would pass any legislation
  • The Brexit Referendum
  • The subsequent UK General Election

Interestingly, many non-experts were “right” about these events.  I put “right” in quotation marks because I think that The Economist is right to say that wishful thinking is partly what got people to their forecasts, rather than pure rational analysis.  This is an example of what Kunda(1990) calls motivated reasoning.  In other words, it is a psychological bias operative in financial markets.  In my new book:

https://www.routledge.com/The-Psychology-of-Successful-Trading-Behavioral-Strategies-for-Profitability/Short/p/book/9781138096288

— I argue that understanding the wide array of psychological biases active in oneself and other market participants is crucial to driving financial performance.

Now we come to Geoffrey Boycott.  I will briefly explain cricket to the extent we need to IMG_0042know about it here.  It is somewhat like baseball.  You want to score without getting out.  The parallel with financial markets is that you want to make money without “getting out” — which I interpret as meaning you take a loss so large that you abandon markets.

Now, Boycott was famous for patience.  He would score freely when opportunity presented itself, but otherwise he would just make sure he didn’t get out.  In the jargon, he “occupied the crease.”  This meant he might be there all day.  The key point is this: if you stay there long enough, the runs will come.  Similarly, in financial markets, if you stay the course, the profits will come.

So I did not see Brexit.  But I was invested in US equities at the time.  So I got the overnight 15% boost from sterling depreciation.  You might call that luck.  I call it occupying the crease.

See Also:

If You Like Gin And Marmite, You Are Probably A Better Trader

The Psychology of Successful Trading: see clip below of me explaining my new book!

The Forthcoming #Bitcoin Crash Will Kill The #Trump Demographic

UK Deficit No Longer A Problem

Author: Tim Short

I am a former investment banking and securitisation specialist, having spent nearly a decade on the trading floor of several international investment banks. Throughout my career, I worked closely with syndicate/traders in order to establish the types of paper which would trade well and gained significant and broad experience in financial markets. Many people have trading experience similar to the above. What marks me out is what I did next. I decided to pursue my interest in philosophy at Doctoral level, specialising in the psychology of how we predict and explain the behaviour of others, and in particular, the errors or biases we are prone to in that process. I have used my experience to write The Psychology of Successful Trading. In this book, I combine the above experience and knowledge to show how biases can lead to inaccurate predictions of the behaviour of other market participants, and how remedying those biases can lead to better predictions and major profits. Learn more on the About Me page.

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