Saturday, December 17, 2005

Speculation Rules and Reality

Use a broad view of reality to gain speculative advantage.

Here is a quote from the opinion page at Junior Partner;

"All people very strongly interpret evidence as supportive of what they believe, or want to believe. Just look at politics. All people also strongly downplay or ignore evidence contrary to their beliefs. An open mind is an elusive delight."

Psychological tests have been made, I forget the exact statistics, but around 85% of a persons response to an article can be projected just by knowing their political affiliation. When shown a made up article and facts about the Middle East the researchers knew in advance, with high probability, if a person would believe it or condemn it by knowing if the person were Democrat or Republican.

Finance and speculation rules?

In Finance there are massive belief systems that permeate the overall investor's decision process. Now oil is important, the trade deficit is not. The twenty year run of the stock market to 2000 makes people even now believe stocks always go up.

If you pick up a "how to make a million" book from the past, you will find them watching the front page of the news for information we ignore today. Reality is not the fad that media is quoting, it is the overall psychological action and inter-relationships that form a backdrop to news.

That makes me a fundamental investor long term. Short term the little squiggles caused by the psychology of myopic investors determine entry and exit points.

To find an indicator of what is important to investors today.

Listen to what people complain about regarding their investments.

The best opportunities are probably somewhere else.



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