Confirmation bias, indexing, anxiety and Porter Stansberry - the best investing blogs and podcasts from the past week
When it comes to bad investor behaviour, I reckon confirmation bias is right up there as one of the most debilitating traps you can fall into.
A few months ago I was talking to someone who could probably be described as one of the best known investors in the UK (certainly among self directed investors). It wasn’t meant to be a chat I’d dredge up in a newsletter some time later, so I shouldn’t really mention who it was.
I should state that sadly I don’t make a habit of hanging out with celebrity investors (although I probably would if any of them asked me).
One of the things we talked about was how scarily tribal some online investor communities can be. From the outside, if you’re apathetic to the shares they’re talking about, or the style of investing they tend to use, you might not notice straight away.
But if you happen to buy or own a share that is held in high esteem by a community like this (and Twitter has become a very popular place for this kind of thing), you’ve basically found a second home.
It can become a constant source of soothing reaffirmation. Stresses and strains… bad news… contrary views… director selling… profit warnings… can all be explained away, leaving you to focus on the good stuff. Why wouldn’t you love it there?
None of this is new, of course. Internet bulletin boards, tipsters, gurus, self-professed experts (sometimes genuine) and social media generally, are all part of the investing landscape in the internet age. And they’re all on tap whenever you want them.
My friend observed:
“The more I live the more I realise what a terrible thing confirmation bias is in shares. The hundreds I have come across who just won't sell anything at a loss and average down is startling.”
Over the past couple of weeks I’ve been talking here about how and why I extracted myself from a portfolio of shares I was running last year. As indifferent as I was to those shares - given that it was a factor-driven portfolio where the companies didn’t matter - there were times when I still felt the occasional heat of confirmation bias.
Why was that? Well in the face of falling markets - which by mid-year had effectively left me with a bunch of shares with no obvious reason for holding them - I was way more prone to being influenced by bad behaviour and emotion. I found myself looking for reasons why I shouldn’t ditch the whole thing straight away.
The lesson for me is that I’ve got to know what I own, and why.
I came across a great article from Joachim Klement on investor intelligence and behaviour this week. This is well worth a read: Klement on Investing - Your investment portfolio has nothing to do with who you are
Have a great weekend,
Ben
Highlights from the past week
The Evidence Based Investor - $1 trillion and counting - Jack Bogle’s legacy to investors
Bloomberg analyst Eric Balchunas published a book last year called The Bogle Effect. You’ll guess from the name that its focus is very much on Jack Bogle, the late founder of investing giant Vanguard, and his massive influence on the indexing industry. Interviewer Robin Powell is a signed-up passive advocate, so this is the transcript of an easy-going conversation. But there is some interesting stuff in here about how Balchunas wrote the book, his relationship with Bogle and the evolution of the active versus passive debate - and how it could all have been so different.
Meb Faber Research - Episode #462: Porter Stansberry on a Possible Recession, Opportunities in Distressed Debt, & The Bull Case for Energy Stocks
I don’t think there’s any getting away from the fact that this is an advert for Porter Stansberry’s new investment research business. After a few years out of the picture, he’s back and building a new mass-newsletter company in the mould of his previous firm, Stansberry Research (and its one-time owner Agora). He touches on how his involvement in Stansberry unravelled, and it’s a wild story that (probably by prior agreement) Meb doesn’t press him on.
Love them or hate them, these newsletter firms are incredibly successful and some of their editorial is undeniably good stuff. Claims and counterclaims of scurrilous behaviour follow them around, but there doesn’t seem to be much stopping Porter (who seems like quite a nice guy). If you’re into excellent, almost conspiratorial story-telling (just one example is that both Harley-Davison and Boeing will go bankrupt in the next three years), this is for you. He actually has some really interesting views, so it’s worth a listen.
UK Dividend Stocks Blog - My FTSE 100 CAPE Valuation and Forecast for 2023
The poor old FTSE 100 sometimes gets a bit of a rough ride from sniffy investors who see it as a bit of an anomaly. Compared to the S&P 500 it’s an index much more weighted to defensive (“old school”) industries like energy, finance and healthcare. With so little tech in there, it’s been royally trounced by its bigger, sexier and wholly more dynamic US counterpart over the past decade… with the exception of last year. With the FTSE a couple of percentage points into positive territory versus -20% for the S&P, it's a reminder, if anything, of the good sense in sector diversification.
This article from John Kingham is masterfully written - he is absolutely excellent on this stuff. Remember that if you’re buying a FTSE All Share tracker, you’re very much buying FTSE 100 performance because of the way the All Share is cap-weighted. So paying attention to FTSE 100 valuation is well worth the effort - and John has done all the work here.
Sean Stannard-Stockton, Intrinsic Investing - The Equity Anxiety Premium
Finance textbooks tell you that the equity risk premium is what stock market investors get in return for the risk that they take. That’s all very well, but it doesn’t shed much light on the very real emotional turmoil that’s involved in all that. Anxiety, in particular, is something that affects everyone differently - and there’s nothing like a year-long bear market for that to show up.
This note from Sean Stannard-Stockton, the CIO at Ensemble Capital, has got a familiar feel about it - there are quite a few fund manager letters around at the moment that focus on the occasional traumas of being in equities and why long-term thinking is essential. It’s natural that they want their weary investors to stay committed despite the pain of underperformance, and there’s a lot here worth thinking about.
Thinking & Strategy
Macro Ops: Unparalleled Investing Research
How To Evaluate Stocks Like Michael Burry
Behavioural Investment
Should We Listen to Outperforming Fund Managers?
Opto Sessions
[Podcast] #152 - Michael Green - Peak Oil Prices and The End of Passive Investing
Of Dollars And Data
How Much Income Do You Need to Be Rich?
The Value Perspective
[Podcast] The Value Perspective Podcast – with Edward Chancellor
A Wealth of Common Sense
The Long-Term Wins
Excess Returns
[Podcast] A Complete Guide to Factor Investing with Andy Berkin
Institutional Research
Schroders
Four "flavours" of value for equity investors
Artemis
Are you ready for a new era?
FTSE Russell
Are investors defining growth stocks wrongly?
Man Institute
The Road Ahead: It’s All Going To Be Okay
Premier Miton
The highs and the lows: How can long-term investors exploit the ups and downs of the economic cycle?
Securities & Markets
Crow Knows
Report on Q4 2023 – probability pays out
The Investor Way
[Podcast] E118 - Tesco, ASOS, Sainsburys, Halfords, M&S & Match Group
Invest Like the Best with Patrick O'Shaughnessy
[Podcast] Miles Grimshaw - The DNA of Software Companies - [Invest Like the Best, EP.312]
Investing Show | Mail Online
Will the FTSE 100 continue to outperform this year?
Money Makers
[Podcast] Weekly Investment Trust Podcast with Jonathan Davis (14 Jan 2023)
Quality Small Caps
[Podcast] Small Caps Podcast with Paul Scott – episode 2 for 2023