Asset management, Behavioral finance, Commodity price, Complexity, Economics, Expertise, Hedging, Market psychology, Psychology, Stock market, trading, trend following

The illusion of expertise in financial markets

Participants in financial markets have to deal with uncertainty on a daily basis. Their need to research and understand markets has given rise to a massive industry delivering security prices, reports and expert analyses to traders and investors seeking to make sense of the markets and predict how they might unfold in the future.

The need to understand stuff is innate to our psychology: when something happens, we almost reflexively want to know why it happened. But the compulsion to pair an effect with its cause sometimes gets us jumping to conclusions. If such conclusions turn out to be mistaken or irrelevant, they could prove useless – or something worse. Consider two recent titles from the ZeroHedge blog, published 89 minutes apart: Continue reading

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Media, Policy, Politics, Psychology, Truth

Zika hype and how the media fail to serve us

Noam Chomsky wrote that, “Citizens of the democratic societies should undertake a course of intellectual self defense to protect themselves from manipulation and control, and to lay the basis for meaningful democracy.”

Any time the mainstream media latch onto an issue and make it a big story you can be sure that it’ll be spun, doctored and distorted so that the public can’t take a well-informed position on the subject. Examples of this are countless and pervasive. About a year ago, the Zika virus story suddenly burst forth, seemingly out of nowhere, linking the mosquito-borne virus with frightful birth deformities in infants of affected mothers, including microcephaly. The story led to mass trip cancellations, abortions, unnecessary carpet-spraying against mosquitoes (which killed millions of bees), and much hysteria in general. As it turns out, the virus is harmless. Continue reading

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Psychology, Something completely different

Deep reading – a gratifying routine for a better living

Before I became a parent I used to wake up around 6 AM every morning, made myself some coffee and spent at least an hour or two reading – not news or fiction but a book about something interesting and of consequence on psychology, history, economics, philosophy… This practice almost invariably charged up my batteries with ideas, energy and enthusiasm and each day started with excitement about what I could accomplish that day. I’ve recently come across an article that distinguished this kind of reading from the more casual kind (newspapers, magazines, e-mail stack…) calling it “deep reading,” which explained, sort of, why I so enjoyed this routine. Continue reading

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Expertise, Psychology, Something completely different

In the beginner’s mind, there are many possibilities…

State a moral case to a ploughman and a professor. The former will decide it as well, and often better than the latter, because he has not been led astray by artificial rules.” Thomas Jefferson wrote this in 1787, but his words remain relevant. Advanced education often narrows our perspective, obstructing our ability to fully evaluate new information or to adapt well to life’s changing circumstances. What we think we know may keep us from grasping new things we need to understand. Zen masters of old likened our capacity to understand to a water bowl: its purpose may be to hold water, but it is only useful to the extent that it is empty. Here’s a real-life example of this metaphor…

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Complexity, Energy crisis, Policy, Psychology, Social development, Truth

Dear Leonardo, …about that 97% consensus…

Yesterday I saw a brief speech by Leonardo di Caprio imploring people to vote – not for the candidate who ignores science. He was talking about the scientific consensus on global warming and mentioned that 97% of all scientists agree that global warming climate change is a man-made phenomenon. This 97% consensus figure is so compelling, it is only fair to explore where it came from.

Where “97% consensus” comes from

One Margaret Zimmerman conducted an opinion survey in 2008. The “survey” consisted of a two-question online questionnaire sent to 10,257 “earth scientists” (?), of whom 3,146 responded. Continue reading

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Asset management, Behavioral finance, Commodity price, Commodity risk, Economics, Hedging, Market research, Market trends, Psychology, Risk management, trend following

Harnessing market trends to manage commodity price risk

On 24th September 2015, David Stein (M Sc., CFA, President and CEO of Aberdeen International[1]) wrote a compelling article analyzing the expected effect of last year’s VolksWagen emissions scandal on palladium and platinum markets that should be of great interest to commodity traders and industry. Continue reading

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Policy, Politics, Psychology, Social development

Brexit and the wisdom of crowds

In the aftermath of last week’s Brexit referendum many denounced the English vote with a mix of derision and indignation: the old and the uneducated crowds destroyed the European dream for everyone else. But would democracy be better if it were restricted to the best educated segment of the population? Let’s consider the idea of “wisdom of crowds.” This mysterious and utterly fascinating concept suggests that humanity evolved to be collectively intelligent and that the crowds tend to be more intelligent than the most intelligent of its members. If you have not yet come across this, prepare to be amazed (and keep an open mind): Continue reading

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