Financial Markets vs Dating Market
Sources
http://sillyinvestor.blogspot.sg/2017/10/random-thoughts-some-uses-of-mental.html
https://www.channelnewsasia.com/news/singapore/fewer-marriages-more-divorces-in-2016-singstat-9040550
http://www.berkshirehathaway.com/2016ar/2016ar.pdf
https://en.wikipedia.org/wiki/Marriage_vows
https://en.wikipedia.org/wiki/Confirmation_bias
https://en.wikipedia.org/wiki/Illusion_of_control
https://en.wikipedia.org/wiki/Anchoring
https://en.wikipedia.org/wiki/Loss_aversion
Chasing the dream
Dream girl vs dream stock
Humans are programmed with genetic shortcuts that set them up for success in the dating market, but failure in the financial markets. Behavioural bias.
1) Confirmation bias - You believe in only information that supports your view and ignore the others
Chasing a girl vs chasing a stock. Women can be very complicated. As a single guy I get a lot of relationship advice. When she say no you think she say yes. Perseverance is the key to success.
When the fundamentals of the company deteriorate and is telling you no, you should agree and say no. The most common myths. The night is darkest before the dawn. There is always light at the end of the tunnel. In reality there is simply no exit down the road and you end up hitting your head against the wall.You may love the stock but the stock will not love you back.
2) Staying focused vs Diversification
Staying true to one vs spreading your eggs in multiple baskets
In Financial Markets, there is no telling what tomorrow can bring. An unexpected event could happen and the share price collapse in value. You need diversification to protect your portfolio.
If you tell your other half, you are over exposed to her and have too large a position and commitment to her, and want to diversify your risk in other areas/ people , you deserve a big tight slap to your face.
3) Illusion of control bias - People overestimate their ability to control events
You say you can give her happiness when there are never such guarantees in life.
When you walk in front of the pastor and announce your wedding vows
you promise to hold her hand from this day forward, for better or for worse, for richer and poorer, in sickness and in health, until death do us part.
In financial markets, there are a lot of things you cannot control. You are never in the driver's seat but merely take along for the ride. In technical analysis, you cannot scribble a few lines on a price chart, say Huat Lah, and expect the markets to obey you. In fundamental analysis, you cannot forecast unexpected sudden shocks to the company / economy.
4) Anchoring bias - Staying the same forever vs changing circumstances
When you get anchored to your girlfriend, and she happens to have a hourglass figure (36-24-36), you get anchored to those numbers. When she gets married and have a kid, the numbers will be messed up. But you might still get anchored to the image she was then, and hoping to go back.
When a 90 year old granny tells you she was once the most popular girl in school, the fact that she was once the most popular remains, but this historic fact is no longer relevant.
In financial markets. Warren buffet was widely misquoted about his holding period of the stock is forever. He recently disputed this point in his 2016 annual report.
Stocks go through booms and busts. You must be able to think on your feet and know when to get in and get out.
If you hold a troubled stock like Toys r us forever, for better or for worse, for richer and for poorer, in sickness and in health, you are setting yourself up for a lot of emotional distress and investment failure.
5) Loss aversion bias - A loss is more significant than a gain
Keeping relationships intact vs cut loss. For couple that are still dating, marriage is like a destination, a full stop at the end of a sentence. For couple that are in a mature relationship, marriage is the start of a sentence. A very very long life sentence.
When the sparks of attraction have extinguished and the excitement for a longed for event has come and gone, the realities of life starts to set in.
Relationship between 2 people can go through rocky times. In older times, people will try to salvage a failing relationship and try to work it out with mutual compromise.
In recent times, a trip to the marriage counsellor can move on to a trip to the divorce lawyer. When couples see red, the lawyers see green (cash). Increased divorce rates in US and Singapore.
In investing and trading, you can place an unlimited amount of stop losses, and cut losses. It encourage a very short term mentality. You can always try to salvage a failing relationship. But you should stay away from toxic assets, minimise your exposure, and cut loss.
Other Points to consider
Hindsight Bias
On hindsight, it is always obvious. In reality, you never know what is going to happen in the future.
Framing bias
Undue influence depending on how the information is provided.
Availability bias
People usually believe in information that seems more updated and current, although it may not be true.
Endowment bias
People attach extra value to the things that are currently holding.
The grass is always greener on the other side
http://sillyinvestor.blogspot.sg/2017/10/random-thoughts-some-uses-of-mental.html
https://www.channelnewsasia.com/news/singapore/fewer-marriages-more-divorces-in-2016-singstat-9040550
http://www.berkshirehathaway.com/2016ar/2016ar.pdf
https://en.wikipedia.org/wiki/Marriage_vows
https://en.wikipedia.org/wiki/Confirmation_bias
https://en.wikipedia.org/wiki/Illusion_of_control
https://en.wikipedia.org/wiki/Anchoring
https://en.wikipedia.org/wiki/Loss_aversion
Chasing the dream
Dream girl vs dream stock
Humans are programmed with genetic shortcuts that set them up for success in the dating market, but failure in the financial markets. Behavioural bias.
1) Confirmation bias - You believe in only information that supports your view and ignore the others
Chasing a girl vs chasing a stock. Women can be very complicated. As a single guy I get a lot of relationship advice. When she say no you think she say yes. Perseverance is the key to success.
When the fundamentals of the company deteriorate and is telling you no, you should agree and say no. The most common myths. The night is darkest before the dawn. There is always light at the end of the tunnel. In reality there is simply no exit down the road and you end up hitting your head against the wall.You may love the stock but the stock will not love you back.
2) Staying focused vs Diversification
Staying true to one vs spreading your eggs in multiple baskets
In Financial Markets, there is no telling what tomorrow can bring. An unexpected event could happen and the share price collapse in value. You need diversification to protect your portfolio.
If you tell your other half, you are over exposed to her and have too large a position and commitment to her, and want to diversify your risk in other areas/ people , you deserve a big tight slap to your face.
3) Illusion of control bias - People overestimate their ability to control events
You say you can give her happiness when there are never such guarantees in life.
When you walk in front of the pastor and announce your wedding vows
you promise to hold her hand from this day forward, for better or for worse, for richer and poorer, in sickness and in health, until death do us part.
In financial markets, there are a lot of things you cannot control. You are never in the driver's seat but merely take along for the ride. In technical analysis, you cannot scribble a few lines on a price chart, say Huat Lah, and expect the markets to obey you. In fundamental analysis, you cannot forecast unexpected sudden shocks to the company / economy.
4) Anchoring bias - Staying the same forever vs changing circumstances
When you get anchored to your girlfriend, and she happens to have a hourglass figure (36-24-36), you get anchored to those numbers. When she gets married and have a kid, the numbers will be messed up. But you might still get anchored to the image she was then, and hoping to go back.
When a 90 year old granny tells you she was once the most popular girl in school, the fact that she was once the most popular remains, but this historic fact is no longer relevant.
In financial markets. Warren buffet was widely misquoted about his holding period of the stock is forever. He recently disputed this point in his 2016 annual report.
Stocks go through booms and busts. You must be able to think on your feet and know when to get in and get out.
If you hold a troubled stock like Toys r us forever, for better or for worse, for richer and for poorer, in sickness and in health, you are setting yourself up for a lot of emotional distress and investment failure.
5) Loss aversion bias - A loss is more significant than a gain
Keeping relationships intact vs cut loss. For couple that are still dating, marriage is like a destination, a full stop at the end of a sentence. For couple that are in a mature relationship, marriage is the start of a sentence. A very very long life sentence.
When the sparks of attraction have extinguished and the excitement for a longed for event has come and gone, the realities of life starts to set in.
Relationship between 2 people can go through rocky times. In older times, people will try to salvage a failing relationship and try to work it out with mutual compromise.
In recent times, a trip to the marriage counsellor can move on to a trip to the divorce lawyer. When couples see red, the lawyers see green (cash). Increased divorce rates in US and Singapore.
In investing and trading, you can place an unlimited amount of stop losses, and cut losses. It encourage a very short term mentality. You can always try to salvage a failing relationship. But you should stay away from toxic assets, minimise your exposure, and cut loss.
Other Points to consider
Hindsight Bias
On hindsight, it is always obvious. In reality, you never know what is going to happen in the future.
Framing bias
Undue influence depending on how the information is provided.
Availability bias
People usually believe in information that seems more updated and current, although it may not be true.
Endowment bias
People attach extra value to the things that are currently holding.
The grass is always greener on the other side
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