Thursday, July 3, 2014

Be careful of your own bias and limitations

I was reading Barry Ritholtz's top 10 reading list. I find he has excellent links and skips on the stupid and the spam. He had a graph in there from the Wall Street journal that I thought was excellent. Its a timely graph because today we had an excellent unemployment report and all the Zerohedgers out there are saying how its actually terrible.
Whats a retail investor to do and to believe in?


The economic expansion since the last recession has been 4.8 years... the exact average of expansion timeframes since World War 2. We are not in uncharted territory here where this bull market and economic growth is breaking new boundries and we should be scared and go 100% cash to get ready for another crash. In fact the Fed and CBO are predicting we have another 3+ years coming.

Now I am not saying we are or are not going to have economic growth in the future near term or long term.
What I am saying is I prefer to look at data and THEN make my decision. Most people do not. They have a bias of whats going to happen and look for confirmation. So to say we have gone on for too long and that is the reason to make portfolio changes is flat out false.
Keep in mind these people couldn't spell "fiat currency" before 2009 and now they have a 2 year old blog where they are going to tell us how the world economy is going to be over the next year.

How much experience do you have? How accurate are you at making estimates and getting the timing correct? Do you have a political or economic bias or opinion that shapes your thoughts?
The unrealstic long case is as bad as the unrealistic short case. People that couldn't spell the word "dividend" before 2009 now have a 2 year old blog talking about how investing is as simple as buying a dividend aristocrat at any price and then wait till retirement till they get rich.

I am wiser than this man; neither of us probably knows anything that is really good, but he thinks he has knowledge, when he has not, while I, having no knowledge, do not think I have.” ― PlatoApology

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

3 comments:

  1. Interesting chart!… I like Buffett's approach of always having cash to take advantage when the market corrects. I like being invested because it brings in cash-flow. Making crazy adjustments like to much cash can actually be counter productive in the long run . Like the process you mentioned in one of your other blogs taking a little off when you have a nice gain, it protects capital and hard work of finding successful investments. Take it easy Pulling.

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    1. I don't think enough Dividend Growth Investors realize the importance of keep some cash. I see them rebalance portfolios regardless of price of the equity and immediately when a deposit hits.

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  2. In your quote above, I can imagine Plato describing the man who thinks he can predict movements in the market. Although each investor has their own strategies, I believe having cash ready to take advantages of market dips (or crashing bears) can prove very beneficial for long-term investors.

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