Article Category: Psychology

Beware of Belief Perseverance

Let's talk psychology again for a moment. Specifically, the idea of belief perseverance.

It affects all of us. I'm guilty of it. You're guilty of it. And everyone else is too, including major decision makers such as Janet Yellen and Barrack Obama. None of us can hide from it, all we can do is attempt to understand it, and thus better understand ourselves.

Belief perseverance refers to the natural tendency of individuals to hold their beliefs as true, even when confronted with ample disconfirming evidence.

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Posted in: Psychology

Holding Our Breath

Did you ever play that game as a kid where you would stick your head underwater and see who could hold their breath the longest?

That's the game the entire oil industry is playing right now, and it's forcing us all to play along.

The problem is that many oil producers are running out of air, and onlookers are trying to predict which bodies will float to the surface first.

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Posted in: Debt Economy Oil Psychology

The Future of Negative Interest Rates

Question - What do you do when you really need someone to spend money?

Answer - You tell them they'll lose it if they don't.

Spending is the lifeblood of an economy. At a social level many people frown on consumerism and materialism, but the fact is that economies function based on the transmission of goods and services from producers to consumers.

The reason spending is so integral to an economy is because every dollar (euro, yen, yuan) spent represents another person's income; reduce spending, and you reduce aggregate levels of income. Reduce spending enough, and the whole system can gradually come to a stop.

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Posted in: Bonds Debt Economy Interest Rates Psychology

A Simple Approach to Assess Future Returns

It's that time of the year again. The period when market analysts begin making predictions as to how stocks will end the following year, as they quietly try to sweep last year's predictions under the rug.

In such a dynamic global environment it's no surprise that nearly all these predictions miss the mark by a big margin. The complexity of our interconnected financial system is enormous, and failing to accurately factor in the movement of just one variable can cause drastic deviations from the expected outcome.

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Posted in: Dividends Earnings Momentum Psychology

Rounded Tops and V-Shaped Bottoms

There are enough Wall Street adages to fill a book, evidenced by Mark Skousen's The Maxims of Wall Street. Some hold great wisdom while others are relics of an older time. One that is relevant to the current investment climate is: Be quick to turn bullish, slow to turn bearish.

The idea here is that major market tops tend to develop over a longer period of time than market bottoms. That is, market tops tend to be long, drawn-out affairs while market bottoms are quick and snappy.

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Posted in: Economy Psychology

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