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 know 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.

Author: Tim Short

I went to Imperial College in 1988 for a BSc(hons) in Physics. I then went back to my hometown, Bristol, for a PhD in Particle Physics. This was written in 1992 on the ZEUS experiment which was located at the HERA accelerator in Hamburg (http://discovery.ucl.ac.uk/1354624/). I spent the next four years as a post-doc in Hamburg. I learned German and developed a fondness for the language and people. I spent a couple of years doing technical sales for a US computer company in Ireland. In 1997, I returned to London to become an investment banker, joining the legendary Principal Finance Group at Nomura. After a spell at Paribas, I moved to Credit Suisse First Boston. I specialized in securitization, leading over €9bn of transactions. My interest in philosophy began in 2006, when I read David Chalmers's "The Conscious Mind." My reaction, apart from fascination, was "he has to be wrong, but I can't see why"! I then became an undergraduate in Philosophy at UCL in 2007. In 2010, I was admitted to graduate school, also at UCL. I wrote my Master's on the topic of "Nietzsche on Memory" (http://discovery.ucl.ac.uk/1421265/). Also during this time, I published a popular article on Sherlock Holmes (http://discovery.ucl.ac.uk/1430371/2/194-1429-1-PB.pdf). I then began work on the Simulation Theory account of Theory of Mind. This led to my second PhD on philosophical aspects of that topic; this was awarded by UCL in March 2016 (http://discovery.ucl.ac.uk/1475972/ -- currently embargoed for copyright reasons). The psychological version of this work formed my book "Simulation Theory". My second book, "The Psychology Of Successful Trading: Behavioural Strategies For Profitability" is in production at Taylor and Francis and will be published in December 2017. It will discuss how cognitive biases affect investment decisions and how knowing this can make us better traders by understanding ourselves and other market participants more fully. I am currently drafting my third book, wherein I will return to more purely academic philosophical psychology, on "Theory of Mind in Abnormal Psychology." Education: I have five degrees, two in physics and three in philosophy. Areas of Research / Professional Expertise: Particle physics, Monte Carlo simulation, Nietzsche (especially psychological topics), phenomenology, Theory of Mind, Simulation Theory Personal Interests: I am a bit of an opera fanatic and I often attend wine tastings. I follow current affairs, especially in their economic aspect. I started as a beginner at the London Piano Institute in August 2015 and passed Grade Two in November 2017!

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