December 2011 Newsletter: Recency Bias
Is “recency” even a word? Not in most dictionaries it isn’t. You’ll get sent back to the tray if you try to play it in scrabble or its popular online equivalent, Words With Friends. Yet the word works very well to describe one of the must‐know biases that affect the way we think in pursuing rewards and avoiding pain, as we do in investing. Behavioral Economists, those deep‐thinking scientists who help us understand why we exercise bad financial behavior when we know better, have coined “recency” to describe our tendency to put more weight than we should on recent events. And what is the cost...
Read MoreNovember 2011 Newsletter: Fallout from Europe
Should we be worried about the problems in the European Union [EU]? A certain amount of concern about government debt issues in Europe is well placed. Previously, government defaults were reserved for the emerging markets in places like Argentina and Russia. Just five years ago, the idea that Italy [gross government debt to GDP of 121%] Ireland [109%] or Portugal [106%] would be considered capable of default on their government bonds seemed far‐fetched science fiction. Now we grapple with frightening headlines from Greece [166%!] and the rest of the EU on a daily basis. Marsh, Marsh, Bill....
Read MoreOctober 2011 Newsletter: Do you suffer from Action Bias?
In the last few months we’ve experienced large fluctuations in the stock market in concert with high stakes debt ceiling negotiations, financial turmoil in Europe, Libyan unrest and, oh yes, hurricanes which are expected this time of year. We are starting to get crisis fatigue. If this piece looks familiar, it’s because it is. We felt it was important enough to make it the topic of our last investment review. We felt this was an important enough message to risk repeating ourselves. As if all the news we get isn’t enough to think about, it turns out that was just 5% of what has going on in...
Read MoreSeptember 2011 Newsletter: All About Risk
Do you feel an oversized dread for something as unlikely as a shark attack, yet feel safe driving a car? What makes something feel risky? What is your personal tolerance level for risk? We worked with a client recently who had just celebrated a big round birthday number, just a number, but it affected her risk tolerance. Another client was affected by a real estate investment that went south at the same time that his stock portfolio was swooning with the markets. Why do we care so much about this topic? Because we want clients, like you, to avoid making the wrong choice at the wrong time if...
Read MoreAugust 2011 Newsletter: Comments on Recent Market Volatility
We are getting the market volatility we expected in our email of July 21st and then some. Despite the credit agency downgrade of US Treasury debt, our core bond fund holdings are holding up well. The stock market, as you know, has reacted violently. We all have vivid memories of 2008 when stocks lost significant value. Our belief that trying to time the market is foolish remains unchanged. A few clients suggested that we exit the market prior to the August 2nd debt ceiling deadline and reinvest on August 3rd. Of course, we now know if we had gone along with that plan, we would have stepped...
Read MoreJuly 2011 Newsletter: Debt & Default
We wanted to share some of our thoughts on the upcoming August 2nd deadline to increase the US Government’s debt ceiling. It is very unfortunate that we are approaching the deadline without a resolution clearly in sight. Given the nature of current political debate, it appears that we won’t have a solution until the last minute, if then. We haven’t seen too much thoughtful discussion of what might actually occur if the deadline passes with no action by Congress. This is not the first time our nation has been faced with this challenge. In 1957, the Federal government...
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