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Monday, 29 March 2010 07:14 |
Dunning Kruger Effect
“The trouble with the world is that the stupid people are cocksure and the intelligent are full of doubts”
- Bertrand Russell
To put it crudely, the not so smart people are not so smart enough to know that they are not so smart. Alright, I’m not trying to be an elitist over here. This post is probably an extension of curse of knowledge. So while there is a trouble of knowing too much, on the other hand, knowing too little may make us inflate our own capability.
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Saturday, 13 March 2010 10:21 |
Curse of Knowledge
Sometimes, knowing more is worse than knowing less. Investing is a lifelong learning process. Every day I am learning new things about investment. I am constantly reading up the newspapers and financial books to gain insights. In addition, I will also meet up with my friends to discuss about investment too, in a way, I’m really fortunate to have people to share my ideas with. Weirdly speaking, sometimes I do have trouble trying to convey some of my ideas to people with knowledge in investment world. It is especially difficult when they are people who are keen about investments and surprisingly, I find it really easy to talk about investment to people who have no knowledge. This actually reminds me of my marketing professor who says that the reason why he chooses to teach marketing to undergraduates rather than graduates is simply because we know nothing about marketing. Curse of knowledge theory seeks to explain such phenomenon.
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Saturday, 06 March 2010 01:31 |
Toyota Motor Corp
Toyota Motor Corp, (TYO:7203, NYSE:TM) has been in the news a lot lately for their car recalls. Basically, many of their vehicles have been victim to faulty accelerators made by a third party part maker. The issue gained widespread media attention when a US police officer experienced unintended acceleration when driving his Toyota car, resulting in fatalities. Since then, they have recalled many of their popular car models, public opinion of their brand has dropped, and there has even been a congressional inquiry.
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Sunday, 28 February 2010 12:42 |
What about Behavioral Finance?
A Rational Decision in an Irrational Market
In this article, I am attempting to conclude some of my thoughts on the role of behavioral finance in the near future. But before I go on to talk about behavioral finance, allow me to point out some of the possible weaknesses of 2 of the most well researched areas, basically, Technically Analysis (TA) and Fundamental Analysis (FA).
For TA, it is a study of past data and trends to predict the future trends and price movements. Yes. Studying past data and trends may be useful for investors to study the trailing behaviors and trends of the market. However, does looking at the past say anything about the future? Although I cannot deny that there are people making profits based on technical analysis, past trends may still not be truly reflective of future trends.
For FA, it is a study of financial statements and ratios of the company, industry and the market. No doubt that fundamental analysis may be useful in analyzing the current financial health via financial ratios and through these analysis, investors may be able to predict the future direction of the investment. I cannot deny that fundamental analysis is useful since investors such as Warren Buffett has made it rich using fundamental analysis. However, there are some anomalies that cannot be explained by financial ratios or models such as CAPM (Capital Asset Pricing Models). In other words, using fundamental analysis in an attempt to find the true “intrinsic” value sometimes does not reflect the actual market price.
Given the limitations of TA and FA, what can investors do to get a more wholesome picture of the investment and the market? Perhaps Behavioral Finance may be the answer.
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Tuesday, 23 February 2010 22:31 |
Rating Agencies, the Ultimate Advisor?
A timeline of events of Greece debt crisis since Prime Minister George Papandreou's socialist PASOK party won snap elections last October: 1. October 2009 - The new government discloses the 2009 budget deficit will be 12.7 percent, more than double the previously announced figure. 2. November 2009 - It also sees public debt rising to 121 percent of GDP in 2010 from 113.4 percent in 2009. EU forecasts on Greece for 2010 are worse, with the deficit seen at 12.2 percent of GDP and national debt rising to 124.9 percent of GDP, the highest ratio in the EU. 3. December 2009 -- S&P on December 7 puts the country's A- sovereign rating on negative watch. 4. On Dec 8, Fitch Ratings, which had cut Greece to A- when the government revealed the higher deficit, cuts Greek debt to BBB+ with a negative outlook. 5. Standard & Poor's cut Greece's rating by one notch on December 16, to BBB-plus from A-minus 6. Moody's cuts Greek debt to A2 from A1 on December 22
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Friday, 19 February 2010 23:18 |
The Euro is doomed to fail
I picked up Adventure capitalist by Jim Rogers and was ready to read it through during Chinese New Year. Just as I turned out the first page of the book, I saw this column of author’s conclusions and I was amazed to see a strong point made – the Euro is doomed to fail. Looking at how things played out today, I regret not picking up this book earlier. In fact, as I read financial times this morning, I saw a column on James Grant, a celebrated U.S bond analyst, who had supposedly told his clients to buy some Greek credit default swaps (CDS). These CDSs serve to protect the clients in case of a bond default by Greece.
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