Investing for Survival

 Investing for Survival---Behavioral Biases from Capital Spectator

Focusing On Recent History. This is another bias that creates havoc for many investors. Maintaining a healthy perspective on market history requires discipline and a fair amount of study. Even for those of us who dive into the details on regular basis, it’s easy to get sidetracked with the news du jour. If you’re not careful, last night’s closing prices look like the most important information to the exclusion of everything else. Most of the time, however, the recent price changes are noise. The dangers are particularly obvious when the stock market, for instance, rises or falls by a relatively large degree in a day or week. The move captures everyone’s attention, in part because the media rolls out the usual suspects to tell us why everything’s changed as of last night. Granted, sometimes that’s true—think September 2008, for instance. But most of the time it’s just noise. How to tell the difference? We can’t, at least not in real time. Sure, if prices continually rise or fall in dramatic fashion there’s probably some strategic message there... eventually. But most of the time it’s just the sound and fury of volatility that signifies nothing for strategic-minded investors.