As outlined in previous commentaries, there have been some further slight reductions in the risk free rate which delineates the threshold between Fully Priced and Overpriced. The return available on a five year term deposit from a major Australian Bank now stands at 4.0%, and...
Curious Investor Behaviour - Number 1 Phase Myopia At different phases of the market, our perspective changes. In the steepening down phase there is a tendency to take an ever-narrower view of the facts, focusing on near-term risk rather than longer-term reward. Conversely, a developing bull market inspires...
Curious Investor Behaviour - Number 2 Heuristic Simplification According to Nobel laureate Herbert Simon, people are so swamped with information that they react consciously to only a tiny part of it. We adopt rules of thumb instead of absorbing the entire data. In general, shortcuts serve us well,...
Curious Investor Behaviour - Number 3 Confirmation Bias Once we have made a decision or formed a view, we subconsciously emphasise information which reinforces that view; at the same time, we tend to downplay contradictory information. The confirmation bias is perhaps the most subversive of all behavioural...
Curious Investor Behaviour - Number 4 Over-Confidence According to multiple studies into human behaviour, the majority of people consider themselves superior in most day-to-day activities - for example, over 90% of drivers believe they are better than average! Over-confidence is a particularly dangerous trait in the field of investment....
Curious Investor Behaviour - Number 5 Herding When investors are uncertain about the value of financial instruments, they typically default to a herding impulse; part of our evolutionary heritage that served us well in the past. Sadly, herds are ruled by the majority, so the prevailing mood predominates. It...