In this issue; In the Golden Age of Grift, how the ease of access and influence of social media has changed the perception of market participants. Wise words on investor behavior, and read-up on how statistics don’t always present the true picture.
Along with this, an insightful video from Rajeev Thakkar, CIO of PPFAS Mutual Fund, discussing the economy of China.
And a podcast episode to listen to from Anthony Pompliano in discussion with William Green, on rational thinking, habits of the best investors, risk management, durability, concentrated portfolios, controlling human psychology, and emulating the greatest investors of our lifetime.
1: Golden Age of Grift
With 24x7 access to various markets and the post-pandemic boredom, the boundaries between investment and entertainment have disappeared. With social media, everything is on constant display. As investors and traders flaunt their quick profits online, FOMO is rampant in the markets.
The winners, losers, and even outsiders of today’s markets all think they’re going to be the next success story, and they’re all looking for the next get-rich-quick trade.
"We are in the middle of a trillion-dollar game of musical chairs. Except some people think their chair can’t disappear, other people sit in a chair before the music actually stops, and a few players just pick up a chair and leave the room altogether. The only losers are the people actually following the rules.
When all of the players think that everyone else is the sucker, half of them will be wrong. But you don’t read about the suckers. You read about the winners. And you think you’re going to be the next one."
2: Wise words on investor behavior
This is a great read on investor behavior. Often when it comes to investing, what we don’t do matters the most. Investing is a long-term game that requires patience, but we are constantly bombarded by headlines and market moves daily. Stories that offer a simple explanation on why the market did what it did. The tempting stuff, that urges us to act, doesn’t matter if the story is right or wrong.
This is the best example of misbehavior, in all the chaos we end up doing exact things we are terrible at – timing the markets and forecasting. Leading to overtrading and falling into the constant trap of buying high and selling low.
And all this is natural human behavior; ”The natural tendencies humans evolved over the millennia were built for surviving the ancient plains, not the stock market. We’re far more suited to focusing on what’s around the next corner. The here and now takes precedent over the far-off future.
Unfortunately, there is always something to worry about (that typically turns out to be nothing) and there is always something outperforming your portfolio. The natural instinct in both cases is to act. Protect your money from imminent losses or from missing out on further gains.”
Success in stock markets requires the complete opposite. You need to be constantly distracted from the chaos. To not tinker with your investments, this is only when the magic of compounding works.
3: Lies, Damn Lies, and Investment Statistics
Mark Twain famously said: “There are three kinds of lies: lies, damned lies, and statistics”.
The investment world is full of numbers, hundreds of formulas, and fancy ratios. Each one has its pros and cons. But this overreliance on stats and numbers may not be always for the good. Stats don’t often tell the truth and numbers can be easily gamed to paint a beautiful picture. An interesting piece on how statistics can distort reality.
“Investment statistics often lie. Sometimes they lie purposefully. Sometimes they lie unintentionally. It’s too easy to game them. Even when honest, they don’t cleanly compare between strategies. Either way, to successfully evaluate an investment, you need to know how investment statistics can distort reality.”
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