21 | February | 2011 | wealthymatters

Dealing With The Shortcomings Of The Human Brain

February 21, 2011 2 Comments

Since we can’t overcome the tendency of the human brain to make mistakes while working through heuristics , here is a list of things we can do to reduce the effects of the shortcomings of the human brain.The more we can incorporate these points into our investing procedures and systems , the better the quality of our returns.The checklist is form Whitney Tilson’s ‘How to Avoid – and Profit From – Manias , Bubbles and Investor Irrationality’.

•Be humble–Avoid leverage, diversify, minimize trading

•Be patient

–Don’t try to get rich quick

–A watched stock never rises

–Tune out the noise

–Make sure time is on your side (stocks instead of options; no leverage)

•Get a partner

–someone you really trust –even if not at your firm Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with bearish, behavioural finance, circle of competence, contrary opinions, diversify, get rich quick, good business, heuristics, How To Avoid and Profit From Manias Bubbles and Investor Irrationality, leverage, randomness, regression to mean, Stock Share Investing, stocks, Whitney Tilson

Psychology And Bad Market Timing.

February 21, 2011 2 Comments

Every stock investor whether a technical or fundamental or value investor ultimately needs to take a call on whether he/she wishes to buy or sell at the price Mr. Market sets at any given time.How much an investment ultimately nets a person depends on the timing of the buy and sell decision and the actual price at which the transaction takes place,despite all the theories of averaging out and time in the market and reversion to the mean.

The following is a checklist of mental mistakes that may affect a person’s decision to buy or sell and cost a him/her dearly. The checklist is from Whitney Tilson’s presentation ‘How to Avoid – and Profit From – Manias,Bubbles and Investor Irrationality”

•Failing to Buy

–Status quo bias

–Regret aversion

–Choice paralysis

–Information overload

–Hope that stock will go down further (extrapolating recent past into the future; greed) or return to previous cheaper price (anchoring)

–Regret at not buying earlier (if stock has risen)

•Office Depot at $8 (vs. $6) Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with anchoring, behavioural finance, Choice Paralysis, endowment effect, Failing to Buy, Failing to Sell, fundamental investor, greed, How To Avoid and Profit From Manias Bubbles and Investor Irrationality, Information Overload, Paper Asset, psychology, Regret Aversion, share, Status quo bias, stock, stock investor, technical investor, value investor, Whitney Tilson

A Critique of the Giving Pledge

February 21, 2011 5 Comments

Wealthymatters.com

Following is a very nice critique of the Giving Pledge and the Buffett-Gates style of philanthropy.I found it a couple of days ago at http://heybrowncow.wordpress.com/2010/10/07/are-gates-and-buffet-teaching-the-world-how-to-live-the-american-way/ . It points out the good and the bad in the effort.The red text are points I find particularly interesting.How do you feel about the Giving Pledge? On what points do you agree/disagree with the author below?

Are Gates and Buffet teaching the world how to live (or give), the American way?

By Dingzi

AMERICAN billionaires and founders of The Giving Pledge Bill Gates and Warren Buffet may be heading next for the Nobel Peace Prize. Imagine what a heap of good the billions that have been pledged can do to make a better world.

Having persuaded 40 fellow American super-rich to pledge at least 50 per cent of their wealth to charity by the time they die – the collective pledge has reached US$1.25 billion – the two philanthropists are taking the campaign international. Read more of this post