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:
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:
— 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.