Wine Business

Wine Brand Story: Optimal Marketing


This article illustrates how to create a Wine Brand Story. It uses Château Musar as an example. Creation of a story is the most important element of marketing wine.

Marketing A Premium Bordeaux Blend From Lebanon

Suggested strapline: The Most Ancient Region for Winemaking — Begun by the Phoenicians at least 6000 years ago.

Our history

We are the most prestigious vineyard in Lebanon, famous since 1930 for producing premium reds. These are based primarily on the equally famed left bank Bordeaux blend of grapes. We lead with Cabernet Sauvignon, supplemented with Carignan and Cinsault. This selection combines French tradition with attention to local conditions. This unique combination of advantages allows us to make wine of the highest quality in global terms and yet with relatively modest pricing.

We have continued to produce wine throughout difficult times in Lebanese history. We produced throughout the second world war and even during the civil war in Lebanon which began in 1975.

Our wines have excellent ageing potential. We are confident that we will be able to celebrate our centenary next decade while looking forward to another 100 years. The spectacular Roman ruins nearby at Baalbek show the depth of history on our doorstep.

Wine Brand Story: Location of Vineyards

The location of the vineyards is already something of a talking point among wine lovers. They are located some distance away from the winery — about a 2.5h drive. People ask why this is. They know that Lebanon is a hot country and grapes can be damaged by heat stress in transit. While we take every precaution to prevent this, including picking in the cool hours of the morning, the question remains as to why the distance between vineyard and winery is relatively large.

The answer to this again lies in history and the difficult history of our land. Our founder was unsure of what the future would bring. He felt confident in siting the winery close to Beirut, near to workers and customers, handy for shipping links and definitely likely to remain Lebanese territory for the foreseeable future. The vineyards are in the agriculturally favoured Bekaa valley.

This area is still in Lebanon today. But no-one knew this at the time.

Wine Brand Story: Vineyards in Harmony with Land and People

Our vineyards are amongst the most spectacular and remote in the world.

They are located in the quiet Bekaa Valley, at around 1000m above sea level. This relatively high altitude offsets what would otherwise be excessive heat for winemaking in the Lebanese climate more generally.

Musar vineyards in the Bekaa Valley

A striking mountain range with snow-topped peaks makes up each flank of the valley. To the east of the valley is the Anti-Lebanon mountains.  To the west, Mount Lebanon separates the Bekaa Valley from the Mediterranean Sea. The Bekaa Valley is the north-eastern most part of the Great Rift Valley, which runs from Syria to the Red Sea.

The vineyards see 300 days of sunshine a year making for a leisurely growing season. Fresh mountain breezes from two directions cool the grapes. We have quite a high temperature range despite the mediterranean climate elsewhere in Lebanon: we will often see snow in winter.

The remoteness of the valley has kept it unspoilt and perfect for winemaking in a historical style.

Winemaking: Methods and Philosophy

We aim to be natural and in harmony with nature and people in everything we do. We have a minimal intervention strategy without being afraid of adding value where it helps and does not cause damage to the land, the vines or above all the wine.

Bedouins harvest our grapes between August and October. We choose not to move to mechanised harvesting. This is because we want to continue to do things the way they have always been done. We will not abandon our communities of pickers merely to address the bottom line. Many families depend on us in a region which is short of work.

We use ambient yeasts rather than adding cultured ones which can lead to homogenous wine production. Our winemakers keep sulphur additions to a minimum. We are not afraid to use what is necessary but we do not keep to a pre-set schedule.

We do not make wine in a hurry. The premium red is released after seven years. We ferment relatively cool: below 30C. This gives us gentle yet effective extraction of colours and flavour compounds such as tannins. After six months, we give the wine 12 months of ageing in French oak. There is then some blending and four years of bottle maturation.

Musar was the first vineyard in Lebanon to achieve organic certification (2006). We maintain the organic approach throughout the process: from grape growing to wine making.

Conveying the Wine Brand Story: Marketing

We now outline the principles on which the above marketing piece was constructed.

The marketing leads on history. That emphasises continuity and quality.

The campaign should be highly visual in nature, using such sites as the Baalbek ruins. These are a USP for Musar since the ruins are only reasonably usable by wineries in Lebanon and Musar is easily the wine with the best brand equity in Lebanon.

The marketing focuses on the way the winery has continued to produce despite difficult circumstances. This gives consumers a sense of connection and history stretching forwards into a bright future. The winery also has strong roots in the past. Showing this resilience is especially necessary in the current circumstances.

We bring out the relative good value of the wines. The idea might be Bordeaux quality at Lebanese prices.

The marketing emphasises natural winemaking and environmental strengths. These qualities are highly fashionable and likely to remain so.

All of these factors highlight that Musar is unique. It has unusual grape varieties. The wine comes from a less-well known region. This also represents an opportunity to gain greater exposure for the whites, which use grapes which will be unknown even to many experts.

Avoid Diluting Brand Equity

Brand equity should not be diliuted. This is less likely to be a problem with the Arak, which is high quality and a product with a clear distinction to the flagship premium red blend. This is probably also true of the rosé product, though this is starting to encroach on the central territory. There have been efforts to broaden the appeal of the products to younger consumers by launching easy-drinking ranges of wines (“Musar Jeune”) which have less age and power. This is a highly questionable strategy and if it continues, should not feature heavily in the marketing.

The flagship brand, while relatively inexpensive in comparison to Bordeaux, is still premium in pricing. This means that customers will be high-involvement. They are likely to fall into marketing segments of either “Experienced Explorers” or “Millennial Treaters.” The age of the former means that a social media campaign will likely be ineffective, but this is probably a group which in any case already has good familiarity with the brand. There is an opportunity nevertheless to reach Millennials via social media and a highly visual campaign based on the above parameters is recommended. A wine brand story is especially important for Millennials.

Conveying the Wine Brand Story: Social Media

Short form video on Instagram are the best near term opportunity. Use “Stories” to promote Baalbek and the vineyards. Focus on younger demographics (already partly accomplished by choice of platform) with interest in wine. Emphasise quality and USPs.

Consider joint ventures with bodies promoting tourism to Lebanon. However, one must remain pragmatic since this is not the right time and resources are scarce.

Look at offering free trips to the winery to influencers who will contract to produce Instagram stories in an “organic” way. It will be helpful if at least some of the resulting posts can avoid the “paid post” tag. This should be possible since the actual experience can be documented by the influencer. Not every aspect of it will in fact have been paid for.

Consider chartering private jet for super-influencers. This will be extraordinarily expensive. It will though result in literally millions of page views and will be widely shared by the right influencer. Product placement in the jet is an appealing option. This also adds interest to the region in general and since Musar has a good cellar door operation already. This can benefit from increased high-involvement customer traffic. Again, current circumstances make this operation sadly impossible at present. In addition, there is a risk that the wine brand story starts to look inaccessible to the ordinary customer.

Wine Business

Wine Sector: Mergers and Acquisitions

Defining Mergers and Acquisitions

Mergers and Acquisitions in the wine sector are the same as in any other sector. They occur when two companies are combined. Subsequently, all of the operations of both companies are subsumed under a single holding company.

What is the difference between a merger and acquisition

One difference between a merger and an acquisition in lay terms relates to the relative size of the companies involved. If two companies of similar revenues combine, that’s a merger. If one company has much more revenue than the second company, that’s an acquisition.

Formally, a true merger is where the companies cease to exist. Shareholders get new shares in that case. An acquisition is where both companies continue to exist as entities but the target becomes the subsidiary of the other. It’s not really about the relative strength / revenue of the companies. Maybe in practice you will rarely find true mergers between companies who have vastly different revenues. However, that’s a statement about a practical matter not a “definition” of a merger vs an acquisition.

Why do companies do Mergers and Acquisitions?

Obtain synergies. There may be opportunities to reduce overall costs. This could involve eliminating duplicated capacities at the two headquarters. It might get bulk discounts on supplies. The company could eliminate headcount in operations. It could save money by combining IT systems.

Increase negotiating power. The merged entity will be a larger player in all its operations and may be able to drive a harder bargain with suppliers, landlords, distributors, finance providers or retailers. The general aim of M&A activity is to produce a strengthened combined operation. I list ways to do this below.

Expand capacity. The merged entity will have a broader portfolio of capabilities or opportunities. For example, the acquiring entity may gain e.g. vineyards/ grapes/locations. Perhaps the target has a state-of-the-art IT system or difficult-to-find liquor licences. The acquiror could also gain a broad and well-designed distribution network.  It could benefit from political connections in an emerging market.

Conduct financial engineering. Often, acquisition targets will be under- geared. This means that they fund their operations more with equity than with debt. That’s inefficient because dividends payable to shareholders are not tax deductible whereas interest payments on debt are by contrast tax-deductible. This angle is often of interest to private equity players.

Enable investment. Frequently, target companies lack sufficient cashflow to develop and enhance their operations and the acquiring company can supply this to allow the combined company to fully exploit its opportunities. Again, this angle is often interesting to private equity.

Add expertise. An acquisition creates the opportunity to attract a best-in-class management talent. In fact, employees at all levels will be easier to find. There will be improvements in training and staff development.

Specifics of Wine Sector Mergers and Acquisitions

Duckhorn Wine Company:

The history of Duckhorn is a good example of how private equity activity has shaped the wine sector.

Duckhorn is based in Napa with 243Ha of vineyard estates in California and in Washington State. Duckhorn had been family-owned and run since inception in 1976.

In 2007, GI Partners acquired Duckhown. GI is a middle-market private equity fund. It originally aimed at providing investment diversification to major Californian pension funds. The purchase price was $300m.

GI worked on developing the management team during its ownership, both via external hires and internal promotions. The product lineup was expanded. Additional focus on the Decoy brand caused it to become “one of the industry’s top luxury wineries.” GI also invested more than $60 million in Duckhorn during their ownership.

This investment achieved the following outcomes.

  • Add 140Ha of vines, allowing a significant expansion of production under both existing brands and new ones.
  • Create state-of-the-art winemaking facilities via construction and acquisition.
  • Introduce Canvasback, a boutique Cabernet Sauvignon from Washington State’s acclaimed Red Mountain.
  • Expand distribution to a wider base of customers locally and internationally.
  • Achieve significant industry recognition. Duckhorn now has the premier US luxury wine portfolio.

GI exited the investment in 2016 by selling Duckhorn for $750m to TSG Consumer. TSG is another private equity firm. It focusses on opportunities in the branded consumer sector.

The initial purchase price of $300m and the stated investment was $60m. So the this Wine Sector: Mergers and Acquisition resulted in an attractive IRR of 9.1% for GI. (I assume that the $60m of investment was distributed equally over the eight non-initial and non-final years of ownership.)

How this Wine Sector Mergers and Acquisitions Changed the Broader Wine Industry

The profitable nature of this investment for GI underlined the appeal of this sector to private equity investors more generally. That is underlined by the subsequent exit to a different private equity house.

It also showed that the opportunities to create value in the sector by adding investment and expertise were achievable relatively easily.

Consequently, the deal increased the value of a restricted number of ultra-luxury US wine operations and brands. It also emphasised the importance of some scarce qualities such as quality vineyards in key locations and a brand portfolio which is ripe for expansion. The brand portfolio was further exploitable. However, it was helpful for the purposes of the acquisition that Duckhorn had significant high-end brand identity. It also had wide awareness among high-involvement consumers and specialist industry players.

The deal showed management teams that private equity could be an appropriate steward of assets. The deal added value while not impeding the expression of core values. It also created rather than destroyed employment. Finance of appropriate size and patience was available. Wine Sector Mergers and acquisitions could benefit everyone.

Duckhorn ended its period under GI ownership with greatly expanded distribution in all US states and in 50 countries on five continents. Distribution is improved with private equity ownership and investment.

Further Transactions Stimulated by the Duckhorn Acquisition

The transaction stimulated further transactions in the US luxury wine sector.

In 2018, Duckhorn (still under the ownership of TSG) acquired Kosta Browne Winery. The seller was Boston-based private equity firm JW Childs Associates. Thus Duckhorn has now become almost a private equity player in its own right in the wine industry.

The President of Duckhorn Alex Ryan said “you can’t market your way out of a lower category into a higher one.” Wine sector wisdom generally agrees with this idea, with the caveat that it can be done but it is very difficult.

Ryan’s statement indicates that one motivating factor for the transaction was to expand product availability without dilution of brand identity. It is possible but very difficult to improve brand identity. Symington’s has been attempting to move its Cockburn’s Port brand upmarket through significant and extended investment.

The stated aim of the transaction was to operate Kosta Browne as a separate unit but expand it via both organic growth and acquisitions, thus further underlining the likely future importance of M&A in the sector.

Ryan noted the importance of private equity in the wine sector, stating that it was “good to have scalable, professional investment coming in to the space” which illustrated “maturation.”

We can expect private equity involvement in the wine sector to continue to be of major and growing importance.

Wine Sector Mergers and Acquisitions: Future Developments

A banker involved in the sector commented as follows on the likely effects of further private equity involvement on the sector.

Further consolidation between companies already involved in the sector is likely. There is more focus on capital appreciation under private equity than “lifestyle” under family ownership. This means more focus on expansion of businesses.

There will likely be higher production of existing brands. That may require broader distribution. This in turn may increase compliance issues within the US three-tier market and internationally.

Portfolios of brands will expanded. That means more expenditure on marketing, market research, segmentation analysis and advertising.

One question raised is whether the successful strategy shown in the GI transaction is scalable. Can the Duckhorn approach also work at Kosta Browne? There could be saturation effects at the luxury end of the market.

Are there opportunities at the value end of the market? There may not be if major conglomerates have already exploited them. We may assume they have been running their businesses at maximum efficiency and with no lack of investment capital and management expertise.

Established luxury wine assets will attract high multiples. These assets are sought after by private equity as well as already established family owners and individual wealth family offices.

The wine business is attractive since it is tangible, easy-to-understand and recession-proof. Potentially it also has some lack of correlation to financial markets more generally.

See also:

Wine Business

Lebanon Wine Logistics


This article discusses Lebanon wine logistics by using Château Musar as an example. See

Grape Transport

The vineyards are at some distance from the winery for historical reasons. The founder was unsure of the future borders of Lebanon. So the winery is in Beirut. But grapes grow more than 60km away.

The grapes are transported a considerable distance under conditions of some heat. However, there are good supplies of inexpensive labour available and it is possible to harvest in the early morning. Against that, the winery is in a major city so there is good availability of skilled labour where it is required

Red grapes grow in the Bekaa valley as described above. The red grape varieties used are Cabernet Sauvignon, Carignan and Cinsault.

White grapes grow in the foothills of the Anti-Lebanon mountains and on the seaward side of Mount Lebanon. The white grape types are Obaideh and Merwah.

Styles of wines and price point

Musar makes premium or super-premium wine. The house has a very strong historical reputation built up since its foundation in the 1930s. The reds compete with Bordeaux. This means that they can be quite expensive when compared to the median bottle sold. Nevertheless, they can be relatively inexpensive when compared to classified growths.

The house has been carefully expanding its range while aiming to maintain brand identity which would suffer from any decline in quality. The white and rosé production of the house is much less well-known than the flagship red blend, but wine critics have described this as an unfortunate situation. There is therefore an opportunity here.

Marketing: Vinification and Climate

This section describes notable viticultural/vinification practices, climactic factors or location details that are useful in the marketing of wines.

There are no specific vinification practices which are unique to the house. Vinification is done carefully throughout as one would expect from a premium product. All wines are “natural.” A minimum interventionist basis is applied. Grape growing achieved organic certification in 2006. The wines ferment in concrete with some time in French oak (from Nevers). Release is after a generous seven years of maturation.

There are specific climatic factors. The vineyards are located at 34N which would normally be too warm for viniculture. The altitude of the vineyards is 1000m which offsets this. The marketing can note this as an unusual though not unique quality factor/differentiator.

Lebanon Wine Logistics: Location

Musar is not the sole wine producer in Lebanon, but it is clearly the most well-known and has by far the best reputation. This forms the underpinning of the marketing. Consumers at high and moderate levels of expertise are interested in trying wines from new locations and new grapes.

The reds are without doubt the highest quality wines made in Lebanon or indeed the middle east region while the fact that they are basically made from a Bordeaux blend means that they can combine quality and a new experience without being too radical a departure from established premium benchmarks.

The whites benefit from the novel location details and are made from two grapes both of which are likely to be unfamiliar to even quite experienced consumers.

The “brand story” of the wine is extremely strong, being unusual and interesting. For example, the cellars of the house were used as air raid shelters during the civil war in Lebanon between 1975 and 1990 and there was no interruption in wine making during hostilities. The general location has an extraordinary long history of winemaking which may potentially be traced back to the Phoenicians in ca. 4500 BCE.

Lebanon Wine Logistics: Cultural Factors

This section describes and specific social, economic, political or legislative factors that would impede or assist the sale of wine.

The wine is for sale overseas, mostly. While Lebanon has been up until very recently a relatively wealthy country, it has experienced a sovereign debt default in 2020 for the first time in its history. It is a relatively liberal country. However, Muslims make up more than 2/3 of its population and that group consumes less alcohol than other groups. Given these factors, the social, economic, political and legislative factors obtaining in the international arena are of more significance to the fortunes of the house.

Lebanon Wine Logistics: Social factors

No current discussion of social factors can omit the effects of COVID19. While there is no very stringent lockdown in place in Lebanon at present, this could occur at any moment if infection rates become elevated. Such a lockdown would present a significant threat if it took place around the harvest.

Agricultural workers would probably be exempt. Harvesting of grapes for wine production could non-essential in the unique circumstances of Lebanon. (After this piece was written, Lebanon was indeed locked down.)

Similarly, the house relies on transportation via sea from Beirut port. Loading ships is a labour intensive operation. It is also computerised and containerised. The house is therefore relatively optimistic that there are reasonably chances of being able to maintain shipments. Failing that, it would be appropriate to develop financial buffers to weather any income interruptions. The increased average maturity of wine that would be available post-crisis would be valuable. This is a negotiating point in seeking interim credit facilities from banks.

This article was also first drafted prior to the explosion in the port of Beirut. This has eliminated 80% of Lebanon’s import potential. The second line port further north at Tripoli lacks warehouse space. The situation is very difficult and wine exports will not take priority under the circumstances.

Lebanon Wine Logistics: Economic factors

The COVID19 shutdown is the most important economic factor. Lockdown will cause GDP declines of 30% or more in Q2 of 2020 and which could potentially continue into Q3 and beyond. The position of wine as a product which is important to many consumers but nevertheless not essential is a difficult one.

There are no ways for the house to mitigate this. The markets will return and the house will be ready with product when they return. Given the global nature of the crisis, there are no clear new markets to explore. However, the crisis appears to be closest to resolution in China, and there is a burgeoning middle class there. That group is anxious to display its status and wealth. This could be an opportune moment to focus marketing efforts in China.

This approach could further benefit from the 2012 prohibition on “lavish gifting” issued by Xi Jinping. That affected sales of super-premium wines such as premier cru classé Bordeaux. Musar could benefit given its niche as a premium wine in a similar style which is nevertheless perhaps more “under the radar” as far as official perceptions of excessive luxury are concerned. This would require discretion and local expertise.

Lebanon Wine Logistics: Political Factors

Lebanese politics is a source of major instability and this could easily give rise to problems for the house. The political structure is unique — some might say uniquely unstable — with a sectarian basis for political appointments.

There are three major religious groups in Lebanon: Shia, Sunni and Christian. The top three political positions divide accordingly. However, population numbers have changed significantly since this arrangement. Young people had already been protesting the poor economic performance of Lebanon, the concomitant unemployment and corruption.

The recent debt default will likely cause a “doom loop” between the sovereign and local banks. This places the house in an exposed position in terms of being a highly visible generator of cashflow which is not in a position to relocate. There may be instability in the local banking sector. Placing funds overseas solves that. But this presents problems in funding the ongoing operations of the house. All of these factors could present the house with difficulties severe enough to prevent or impede production or sale of wine.

There have been no local legislative threats, but in the context described above, it is clear that the government is desperate for funds. An attempt to place a tax on WhatsApp messaging threatened the survival of the government. It has subsequently fallen in any case. Musar could be an easy target for taxation and other informal methods by which officials seek funding.

Lebanon Wine Logistics: Regional Factors

Lebanon has historically had good relations with most countries and has accordingly not suffered a great deal from trade embargoes or tariffs. There appear to be fair prospects of this continuing. Relations with Saudi Arabia are strained. That country is not a customer for Musar in any case. A resolution of the conflict in Syria appears to be in prospect and this would eliminate a major local source of instability.


The house has historically sold a great deal of wine to France, partly because of the long shared history between the two nations. The Loi Evin in France reduced the allowed advertising of alcohol in 1991. Nevertheless, the house has a strong enough reputation which continues to spread by word of mouth and expert opinion and so has suffered less than it might have done as a result of this factor.

Restrictions on social media are less in evidence currently so this represents an important opportunity to address new consumers. It would be valuable to explore engaging an appropriate celebrity or online influencer. Such an individual must fit with the high quality brand image and add brand awareness in a way which reaches likely new customers. These will need to be relatively affluent groups so some research on where high-earning Millennials are allocating their social media attention will be useful.

Lebanon Wine Logistics: Cost Factors

This section describes costs associated with getting wine to the specific market: packaging, transportation, importation, sales and marketing.

In general, costs within Lebanon are relatively modest since inexpensive labour is widely available.

Packaging costs are relatively high since the house is a premium brand. Sales generated in Lebanon at the cellar door are important and require premium packaging. This consists of branded padded boxes and other branded accoutrements. These high costs are more than offset by the sales revenue however, since the premium nature of the house allows it to command high prices especially for older vintages.

Transportation is relatively problem-free when the port is operating. The winery is next to the major seaport of Beirut. Wine can travel there by road easily. The house is fortunate in that its location in the eastern Mediterranean allows the easy transport by ship to many significant markets such as France, Italy and the UK. The US is more of a challenge, but again since the house is producing premium high priced product, air freight is an option.

The major issue is that the 60km from the vineyard to the winery is time-consuming given the quality of local infrastructure, but this is a fact of life rather than an addressable cost issue.

Importation costs are in-line with market conditions generally. The climate globally has moved in a protectionist direction, partly as a result of the advent of the Trump admininstration and the subsequent US-China trade war. The election in Nov-20 could ease this situation. That requires the incumbent to lose.

For more specific discussion on marketing at Musar, see:

Political Costs

Brexit still has extremely unclear outcomes. Lebanon and the UK signed a continuity trade deal in 2019. No new tariffs will be imposed in what is a major market for the house.

Sales costs are in-line with market conditions generally. The cellar door operation is relatively expensive. There are no charges and samples of vintages going back to 1974 are available. However, in a group of 12-15 attendees, on average 3-5 will make purchases. Since these can be in the range of $1,000 to $2,000 — bearing in mind that most attendees will have travelled from Europe to attend the cellar door — this activity is highly viable economically.

Marketing costs have been historically relatively modest because the house has been able to rely on its reputation. However, given the extremely challenging environment described above, this is likely to change. The engagement of a celebrity influencer will be extremely expensive because these individuals are scarce. The house continues to incur expenditure on items such as branded corkscrews but it is unclear how rewarding this is.


This section discusses whether selling wine in the assigned market a valuable business proposition.

Overall, despite the extreme challenges presented by the current environment, there are good prospects that the house will be in a position to continue to thrive. Possibly some positive factors will offset the difficulties of the situation. These include the possibility that people in lockdown will consume more wine.

Restaurants are closed. That improves affordability. This means that consumers will be buying the wine with a typical retail mark-up (ca. 20%) rather than a typical HoReCa mark-up (ca. 66%). The end of lockdown will be greeted with enthusiasm by customers. Wine will play a major part in the celebrations that will doubtless follow. Musar can take advantage of this factor.

The major difficulty is surviving COVID. That challenge faces everyone. But Musar has demonstrated more resilience than most wine producers.

the psychology of successful trading

Plan Continuation Bias In Financial Markets

What is Plan Continuation Bias?

Plan Continuation Bias is a major factor driving investor losses in stock and other financial markets.  For example, many investors tend to hold on to losers for too long when they should cut their losses.  In this article, I will outline how this bias permeates our psychology by looking at how it works in air crashes, and then go on to examine its effects in financial markets. Investors will learn how to address this bias and improve trading performance.

Plan Continuation Bias, simply put, is the tendency we all have to continue on the path we have already chosen or fallen into without rigorously checking whether that is still the best idea or even advisable at all. Operating with this bias, as with the other 180+ biases that are an unavoidable feature of our psychology, is generally a good idea. We simply don’t have the time to constantly re-analyse our decisions.

Plan Continuation Bias in Plane Crashes

Berman and Dismukes wrote a NASA report on this problem, which they describe in a brief article. They define Plan Continuation Bias as follows:

a deep-rooted tendency of individuals to continue their original plan of action even when changing circumstances require a new plan

Berman and Dismukes “Pressing the Approach” Aviation Safety World, December 2006, pp. 28–33

The authors describe two air crashes which were in their view caused by the operation of Plan Continuation Bias. Flight 1420 into Little Rock, Arkansas crashed in June 1999 because the pilots ignored alarms and persisted with an approach in difficult weather conditions. Similarly, Flight 1455 crashed in March 2000 in Burbank, California because the pilots continued with an approach even though they knew that they were flying at 182 knots which they knew was 40 knots above the target touchdown speed.

It is very easy for us to sit here on the ground and do armchair flying. We would not have made these errors we say to ourselves, wrongly. If we saw that we were flying too fast or that there were multiple alarms sounding, we would abort the landing and go around. This is not difficult to do. This quick and wrong simulation of the pilots misses out many germane factors. The pilots are under some pressure to land planes quickly and efficiently for cost reasons. There are no guarantees that going around will improve weather conditions. But ultimately, the major factor in these crashes in human cognitive bias.

Plan Continuation Bias has significant effects on the psychology of all of us. As the authors observe,

Our analysis suggests that almost all experienced pilots operating in the same environment in which the accident crews were operating, and knowing only what the accident crews knew at each moment of the flight, would be vulnerable to making similar decisions and errors

Berman and Dismukes “Pressing the Approach” Aviation Safety World, December 2006, pp. 28–33

Effects in Financial Markets

Plan Continuation Bias is just as relevant a factor in making decisions in financial markets. We can be just as liable as the pilots described above to sticking to the plan. We bought a stock, it was a good idea at the time, and we continue to hold it even though the original reasons for it being a buy have dissipated or not transpired.

In trading, while no one is going to be killed, it is still an environment in which decisions need to be made on an inadequate data set and sometimes under time pressure. It is also going to be a highly charged situation emotionally. The inadequate data set could result from factors such as the impossibility of predicting the future or the sheer scale of the operations of a listed company. Time pressure is particularly prevalent in day trading, but even more long-term investors are susceptible to effects such as feeling that “money is burning a hole in their pocket” and they need to put a trade on right now. The emotional charge comes from losing money. We are all highly averse to losses — in fact, we seem to be 2.5x more averse to losing money than we favour gaining the same amount. It hurts to lose. It challenges our self-perception.

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How To Prevent Plan Continuation Bias From Impeding Your Stock Market Performance

  • Try to minimise the effects of an inadequate data set by either doing more research or not trading unless you are certain or can set downside limits. Don’t take trades where it looks like you need to know everything about a company or where you think other market participants can easily know more than you. Avoid trading assets you don’t understand like Bitcoin.
  • Don’t do anything under time pressure. You will need to get used to FOMO because “just getting one more trade on” will kill you quite quickly. It’s fine to miss things. It is much more important to get a small number of decisions right than to try to catch every opportunity
  • Don’t trade when feeling strong emotions and try to trade emotionlessly. This is hard to do. It is particularly hard to learn this from practice/dummy accounts. It simply doesn’t hurt very much to lose play money. You should still start here, but be prepared for real life to be much harder. Get more Zen about it. It doesn’t matter if a trade loses as long as you are up over the year.

See also:

the psychology of successful trading

Women Traders Are Better: More Data


We now have more data showing the women traders are better.

Warwick University Business School (“WUBS”) have conducted a fascinating study on the investment performance of men and women.  See: WUBS:

They show that women perform significantly better with a good sample size and temporal range.  They make some interesting remarks on why this might be.  I think I can add some extra psychological depth to this — so we can see that female traders appear to have some quite deep natural advantages and they should feel encouraged about managing their own investments.

What WUBS did was collaborate with the share dealing service offered by Barclays Bank.  They looked at 2800 investors over three years.  There are various ways of measuring stock market performance, but one of the most common is to compare the performance of a portfolio with a relevant stock market index.  (I explain what a stock market index is here: What Is A #Bear #Market?)

Data on Women Traders

It is quite hard to outperform an index consistently.  This fact is what lies behind the recent strong growth of tracker funds.  You may as well buy the index if you can’t beat it.  The results from the WUBS study showed that women consistently outperformed the FTSE-100 index and men did not.  The male investors returned 0.14% above the index which is basically statistically consistent with having performed equivalently to it.  However, I suspect that these investors would have been better off just buying the index rather than paying a lot of trading fees to obtain the same performance.

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The female investors outperformed the FTSE-100 by a massive 1.80%.  This may not sound much, but it is actually huge.  Done over a lengthy period, it would lead to significantly improved results.  Let us assume that the FTSE-100 returns 5% a year.  If you started with £10,000 and performed as the male investors do, you would end up with £45,000 after 30 years.  (It is always important to think long term in the stock market; to prefigure part of the answers I will discuss below, the women seem to understand this.)  

The female investors would turn £10,000 into £72,000 over the same 30 year period.  That is a huge improvement over £45,000 and bear in mind that the female investors have taken the same risk, making it even more impressive.  (One caveat is in order here: no one performs this consistently over the long-term–if they say they do, it is a huge red flag.  Remember Madoff?  But the point stands.)

How are female investors outperforming?

WUBS and Barclays set out a few reasons which could explain the outperformance.  One of them is the one we already know about.  Women are less over-confident than men.  I explain how that works here: Women Are Better Traders Than Men.  In summary, women tend less often to think that their new idea is brilliant and then abandon their previous idea before it has had time to work.  Men on the other hand just get extremely convinced about their new sure-fire idea and go with it.  Interestingly, women’s lack of over-confidence is not manifested in what they say about their beliefs.  They just don’t act on them as often.  We could discuss philosophically what that means about our account of belief — but the key point is that women are less likely to trade in deleterious ways!

What Mistakes do Women Traders Avoid?

Several reasons are suggested.  There are three that I think are especially interesting.

  • Women stay away from terrible ideas like #Bitcoin
    • I have not seen any data on how many women bought into Bitcoin, but is is certainly consistent with my claim in the second post above that female investors have stayed away — we know that women did not vote for Trump very often and much less so if they had college degrees.  In addition all of the online hysteria (!) from Bitcoin boosters appeared to be from deluded male market participants.
  • Women avoid “lottery style” trading
    • It has always struck me as insanity to own a lot of penny stocks which are supposed to return ten times the amount you invest in a year because this almost never happens. A far better approach is just to sit still in major stocks for a long time, with maybe some spicy options for fun in a minor section of the portfolio.  The problem with picking the next Amazon (or Bitcoin, for that matter) is that you can’t.  You would have to own a million penny stocks for each Amazon or Apple.  So this strategy is exciting but completely unsuccessful.
  • Men hold on to their losers
    • It seems that women are better at getting out of something which hasn’t worked.  This came very close to home for me.  Infamously, I am still holding Deutsche Bank stock, partly because I recommended it in my book as a contrarian trade.  Banks are supposed to trade at at least book value (in fact, 2.0x before the crisis).  Because it is buying something for a quarter of its value.  That hasn’t worked for me yet — maybe a female trader would have got out of this position a long time ago.
the psychology of successful trading

Trading Psychology: Optimise Your Performance

Why is Trading Psychology Important?

Understanding trading psychology is one of the most important but also less often done tasks for investors.  Of course, everyone realises that they need to analyse the investments they are considering buying.  But many traders do not realise that winning in investment is mostly about successfully predicting what other market players will do.  Before they do it. And that is a psychological task.

Most of the advice on the internet is not really psychology.  It is quasi-psychology.  You might get famous traders telling you things like “I always played tennis in the morning before my best trades to make sure I felt good.”  This is useless.  By all means, study what these guys do. You may get insights into how they look at opportunities and maybe any tricks they have for bouncing back from a loss.  But famous traders don’t have any specific training in psychology. So, if you are specifically wanting to improve your own trading psychology, adopting their tips (such as the tennis one above) won’t really help you in achieving that goal.

What you need to look at is the psychological literature. This is published in the academic journals. You also need to do that having spent a decade on the trading floor. Fortunately, you don’t need to do that yourself since I have done it for you. So all you need to do is read the book.

The other sort of person who cannot help you is someone merely described as a psychologist. That’s better than nothing. But they need to be the right sort of psychologist, as I will set out in the next section.

Is that the right sort of psychology?

There are some actual psychologists who write on the topic and are experts in the field.  But be careful about their specialisms.  Someone who is a clinical psychologist may be an expert in schizophrenia. They may however not necessarily know any other aspects of human psychology.  And of course these experts do not have any serious trading experience. So they definitely can’t help you improve your trading psychology. Unless you have schizophrenia. But in that case, you have more pressing issues to attend to than the performance of your portfolio.

There are also a lot of completely unqualified people who write on these topics. They don’t know any psychology and they don’t know anything about trading. These individuals are all over the internet. But you should not waste any of your time on them.

The right sort of psychology is actually called Theory of Mind. This is the label for the way we predict and explain the behaviour of others. This is exactly the area in which I specialise. You can check that out in my first book:

To identify the right sort of person, you need to ask two questions. Does this person have significant trading experience? Are they qualified in a related field?  I am one of these people.

How To Optimise Your Psychology

To convince you of this, I will outline my ideas on how to optimise your trading psychology.  The first thing to know about is that we have a lot of cognitive biases. (Here’s a list on Wikipedia: there are hundreds! )

These are mental shortcuts that are often useful when we want a quick and dirty answer. However, they are often very unhelpful when we are trying to get something right.  One example is Confirmation Bias. This is where people look only for evidence that supports what they already believe.  There have been many robust psychology experiments published, that show time and time again that we do this often.

This isn’t something which is optional. Cognitive biases are a fundamental part of our wiring. More intelligence does not make you immune to biases. At least if you know about them though you have a chance to counteract them.

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The first thing to note here is that if you use this bias when making your own trading decisions, you will make bad decisions.  Every time!  So you will definitely not be optimising your trading psychology.  But here’s the key point: everyone else in the markets will be doing it too.

So what does that mean?  It means you need to know about Confirmation Bias. You need to think about it in a market context.  Look out for it in yourself and be careful.  Expect it in other market players and trade accordingly.  

That’s how you stand the best chance of optimising your trading psychology. 

See Also: The Illusory Truth Effect And Financial Markets

the psychology of successful trading

Smart People Still Have Biases


Some people deny that smart people still have biases. Here is a description of one example of that:

They are wrong however. The psychological literature makes this clear. I will outline the data showing that in this article.

What are Cognitive Biases?

There are a large number of cognitive biases operative in our psychology. There were over 180 at the last count, and that is just the ones we know about so far.  All of these biases are largely invisible to us in their operation. They are extremely hard to eradicate.  Significant financial incentives do not cause reduction of the effects of some of these biases.  I have discussed myself at length (Short, 2017) the way biases can cause highly suboptimal decision-making. That happens even when there are very serious financial consequences.

The types of bias I mean would be exemplified by Confirmation Bias. This occurs when people look for evidence which confirms hypotheses they already believe.  I think we should also consider Gender Bias in this same arena. However, the claim we should not represents a potential objection to my position.  I will address that below. But first I will show that intelligence offers no protection against implicit biases.

Smart People Still Have Biases: Three Examples

Here are three types of bias where it was not the case that more intelligent subjects exhibited less bias.

  1. Myside Bias — this is related to Confirmation Bias.  It occurs when people evaluate and generate evidence or test hypotheses in a way that conforms to their prior opinions and attitudes.  Stanovich, West and Toplak (2013, p. 259) found that the “magnitude of the myside bias shows very little relation to intelligence.”
  2. Dunning-Kruger Effect: unskilled persons also lack insight into their relatively poor abilities in an area.  However, similar bias effects operate at the other end of the spectrum.   Schlösser et al. (2013, p. 85) report that their model “partially explained why top performers underestimate their performances.”  (I am assuming a correlation here between high intelligence and an ability to be a top performer in the fields of endeavour examined by the authors.)  But here we see that intelligent subjects are also not immune from a variant of the Dunning-Kruger Effect.
  3. The Gambler’s Fallacy — this is the tendency to think that fixed probabilities are altered by past events.  For example, the odds of getting heads on throwing a fair coin are always 50%, irrespective of what has happened previously.  If someone sees heads ten times in a row and then says either “it must be heads again next” or the opposite, they are exhibiting this apparently maladaptive heuristic.  Xue et al. (2012) found that “individuals’ use of the [Gambler’s Fallacy] strategy was positively correlated with their general intelligence.’’
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Smart People Still Have Biases: A Potential Objection

I will close by considering one potential objection to my account.  This is that Gender Bias is not a cognitive bias and should not be considered in the group above where intelligence is not a protective factor.  I will counter this objection in a number of ways.

  1. If Gender Bias is not a cognitive bias, what is it?  It results in a systematic slanting of judgements away from what would be strictly rational, and that accords precisely with my working definition of a bias (Short, 2015).
  2. I do not need to assume a narrow and precise definition for Gender Bias.  I am including within it all of what people refer to by the terms Sex Discrimination, Sexual Discrimination, Homophobia, Anti-LGBTQ+ prejudice etc.  These discriminations often take place via stereotyping — assuming that everyone in group X has certain characteristics which may in fact be possessed by only some or indeed none of the members of group X.  Stereotyping appears on the standard list of cognitive biases.
  3. Krieger (1995) explicitly considers racial bias within a cognitive bias framework and includes also discussion of Gender Bias. 

So we can see that the claim that intelligence protects against implicit bias is false. 

For more on a bias in action, see:

the psychology of successful trading

What Is A Bear Market?

People often ask what the common stock market terminology of bullish or bearish means.  While these have standard meanings in normal speech — bullish being positive or optimistic, and bearish being the opposite — at least the term “bear market” has a precise technical definition in the arena of stocks.  I will explain this here.

The formal definition of a bear market is a market that has declined 20%.

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How to Understand the Definition of a Bear Market

The first item to clear up on the way to understanding the definition is “what do we mean by a market?”  Normally people will be talking about a particular stock market index, such as for example the Dow Jones Industrial Average (“DJIA”), the S&P 500 or the Nikkei-225 (“N-225”).  So now we want to know what a stock market index is.

Individual shares go up and down all the time.  One cannot say what is happening in more broad terms to “the market” by looking at single shares because of this volatility.  So instead, one looks at a basket of shares.  That is what an index is: a basket of shares listed in a specific location.  There are thousand of these, and they can be selected in many different ways.  

Illustrating a Bear Market Using the Dow Jones Index

To illustrate this, the DJIA is a basket of 30 major US shares that are selected so that they represent a good spread of major US stocks in different sectors such as computers, aircraft manufacture and banking.  The S&P 500 is a broader basket of shares issued by the 500 largest public companies listed in the US.  The N-225 is somewhat different as it is made up of the 225 largest stocks listed in Tokyo.  It is price weighted, meaning that more expensive stocks will be more heavily influential in the movement of the index.

So, put simply, if all of the component stocks in the DJIA go down 20% in a period, the whole index will also go down 20% over that time.  Since this index and the others are a broader measure of market sentiment than any single stock, if the DJIA goes down 20% in a period, we can say that it was a bearish episode for the market.  Since that is an approximate measure of the health of blue chip US equities, one would also be justified in saying that that period was a bearish period more generally for major US companies.

The DJIA has been published since 1896.  The graph looks like a long uptrend punctuated by occasional bear markets.  You can see this below.

People tend to talk less about the technical definition of a bull market.  They will often use it more colloquially to just mean “stocks are going up.”  But if one wanted to be precise, it would just be the opposite of a bear market.  It would mean that a particular index had increased by 20% from a trough.

See Also:

Why #Value Investors Should Buy #Bank Stocks

What Is “Theory Of Mind?”

Cognitive Biases And How They Affect Stock Markets

the psychology of successful trading

Value Investment: Buy Bank Stocks


I recently discussed (in Investment Styles) the two major different styles of investing: value and momentum. One difficulty with following a value approach is the difficulty in measuring value. That’s because many assets these days are not very tangible. I will suggest here that, counter-intuitively, buying bank stocks is the solution to this problem.

Value Investing: What is it?

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The value approach to investing is simple to understand, though perhaps a little harder to implement.  The basic idea is that you buy things when they are cheap.  Finding cheap assets would classically rely on looking at concepts like “book value.” That is just the accounting value of everything owned by the firm in which you are thinking of investing.

In previous decades, book value would have been simple to calculate: you could just look at the published accounts. You would check how much the accountants said each asset was worth.  A company making cars, say, would own a lot of items like factories, car parts, machinery and land.  You could look at all of those items that you could walk up to and touch, and add up all the values. And that’s it: you have calculated book value.  

If you can buy the stock for less than book value per stock, you have made a good investment.  If the company sold all of its assets, and turned that book value into actual cash, each shareholder would get more than book value.  That’s why value investing is a good idea, and why you should try to buy stocks at less than book value.

It is true that value investment has not performed well in the last decade. We need to see if this changes. I would prefer to fail buying cheap assets than buying expensive ones.

Why Using Book Value is More Difficult These Days

This simple approach is more difficult in modern times, because IP — Intellectual Property — is much more important than it used to be.  IP is anything the company owns which is valuable but that you can’t touch.  It could be a suite of software, the value of a brand, or

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simply the know-how involved in producing the products or services that the company produces.  To illustrate the scale of this IP problem for value investors, consider the following estimate.  Ocean Tomo, an investment bank, reckoned that the proportion of the value of S&P500 companies which was tied up in IP increased from 17% in 1975 to a huge 84% in 2015.  So it is clear that there is a very serious problem in adopting a value investment approach these days, and that’s unfortunate because in my opinion, it is the only approach that works.

Value Investment: What Should Investors Do?

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If you look at the balance sheet for Deutsche Bank, for example, you will see a very large number of items.  They will all have market values though.  That will be true of shares, bonds, interest rate swaps, credit default swaps, loans to corporates, futures and options, office buildings, warrants, cash in various currencies and any of the other myriad financial assets.  There will also be a certain amount of brand value but I think that will be fairly low in the mix.  So basically everything owned by Deutsche Bank could be turned into cash, and a known amount of cash, quite quickly.


Value Investment: Conclusion

Banks typically traded at 2.0x book value before the crisis.  The rule of thumb for value investors in the sector was “buy at 1.0x book value, sell at 2.0.”  Something like this is still true: you can buy Deutsche Bank at 0.3x book value and I think you should.  That’s the right approach for value investors today.

See Also:

Investment Styles

the psychology of successful trading

Investment Styles: Value Investment

What are Investment Styles?

There are two major types of investment styles which take completely different approaches.  They are value investing and momentum investing.  The former, also known as contrarianism, seeks to find cheap assets to buy.  It is called contrarianism because often it involves looking for assets which are cheap because no one likes them.  Momentum investing is simpler.  This simply observes that often, assets that have been performing well continue to do so.  So investors adopting this style just look for assets which have gone up and hope that they will continue to do so.

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Investment Styles: Value

I think the best investment style is value investing.  One reason for this is because the problem with momentum investing is that assets which have done well continue to so until they don’t.  There is no way to tell when something which has gone up will stop doing so.  And we definitely know that nothing will appreciate forever!

The difficulty with value investing is knowing when an asset is cheap.  In the early days of investing, the concept of book value was very useful.  This is simply the accounting value.  If a company owns a factory and some machinery, the book value will be close to the value for which the factory and the machines could be sold. If you can buy a share, or a slice of the company, for less than the book value per share, you should.  

One top course is:

Book Value

Book value is still very useful on many occasions.  But modern companies are very complicated, and often much of what they do cannot be valued simply.  A lot of their worth might be tied up in software, for example, which is harder to value than a building.  Or they might own a lot of IPR — intellectual property which again, is intangible and hard to value.  But the effort is worth it.  Finding a cheap company to buy is one of the best ways to trade successfully. 

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Psychology as an Aspect of Investment Style

I have written a lot about the importance of psychological factors in investing.  It is absolutely crucial that you understand these, for two reasons.  Knowing about your own psychology will help you understand and improve your decision-making processes. It will be especially valuable to know when cognitive biases are likely to cause you to make errors in evaluating investments.  But just as important is knowing how other investors will think — after all, they have the same psychology as you do!  And knowing what other investors are likely to think of an asset is the key.  Because you want to find an asset which is not just cheap — but unjustifiably so.  Then you can expect it to go up sustainably.

See also: for how to implement this.