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Wednesday, 19 June 2013

Lake Wobegon effect


"Welcome to Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average."

Garrison Keillor 



The Lake Wobegon effect has been used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities in relation to others.

Being a Singaporean, I can identify with it. 

That is until I started travelling and working overseas...

Yet some Singaporeans are clueless why our neighbours find us "arrogant"...


Car drivers know it well too. It's the other drivers that can't bloody drive! 


As traders and investors, we can see this effect quite prevalent amongst newbies - they are so sure of their trading setups and positions and can quote writer guru says this, speaker guru says that... Especially if they have just read a "famous" book or attended a weekend seminar. 

Old timers, remember we were once like that until Mr Market taught us humility via the realization that what we think we know is painfully different from what we know we know...

I guess that's why when we accept we could be wrong, we start to use techniques like: scaling in, scaling out; and/or cut our losses.

Why would we cut our losses if we think it's the other market participants who have got it wrong?



21 comments:

  1. want to write a long comment but interupted by the market.

    1997 all over again? haze then follow by the dramatic crash?!

    ReplyDelete
    Replies
    1. coconut,

      Don't frighten me!

      1997 setback was worse than 2008 when it comes to the real economy. I remember lots of white collar executives and managers got retrenched and new graduates need 1-2 years to find good jobs.

      2008 was not a big impact economy wise as we recovered quite quickly - just look at the car COE and property prices!

      But stock market wise, both 97 and 2008 were real baptism of fire for all of us!

      I now looking at STI 3000. Let's see if it breaks or hold.

      Delete
    2. what do you mean? you think will not happen?

      2008 was financial crises, now we are in danger of economic crises, which one is worst i don't know. i guess economic crises cos it will hit people on the street.

      look at where are we now! and where can we go from here? up to the moon?

      Delete
    3. we will be lucky if we can hold on to our current positions without much panic, as long as the central banks can hold on to their policies and keep interest rate low, market had other ideas.

      Delete
    4. that is why in this crises, if there is one, i will only buy assets stocks and not growth stocks.

      Delete
  2. hey!

    you are retired already what (i forgot about it haha)? what so frightening?

    ReplyDelete
    Replies
    1. and you know why we have this kind of market swinging wildly? when you start trying to maddle with it, thinking you can somehow control this and control that.

      Delete
    2. there is a saying, who ever wants to manupulate the market will eventually get crash on itself!

      Delete
    3. coconut,

      I am sitting on a nice margin of safety for my core holdings.

      Another 10% drop from here means a plain vanilla bear market drop of 20% from the STI May top of around 3460.

      This I no problem.

      But if it's another one of those 50% big sell offs, I'll have to sell and that is messing with my desire to sit tight...

      On the other hand, I have some dry powder, so I win some; loose some.

      Life can be so confusing! LOL!

      Delete
    4. why do you need to sell i don't understand??

      you should buy more isn't it?

      Delete
    5. LOL!

      You think I got unlimited funds?

      If you are convinced your positions will go down 30-50%, do you hold on to them and average down with your spare dry powder?

      That how I learned the hard way about the "fundamental trap". Instead of admitting I bought too early or over-paid, I keep buying the dips until run out of funds when the REAL bottom appeared.

      Ouch!

      Delete
    6. you know, i tend to gives advise to friends, but after all being said, i always regretted it.

      no, not that they don't appreciate, i don't care about it. but it just a waste of time and they ended up being more confuse.

      just stick to your plan.

      to answer your stupid question, if i know my share will go down another 50%, i will SHORT them!



      Delete
    7. Exactly!

      I not as aggressive as you; but selling and turning to cash is equivalent to taking a bearish view like you.

      The only problem is how I wish I can tell the difference between a normal correction and a severe 50% crash before hand!

      Powerful reversal day today!

      Those who panic sell in the morning must be regretting now; while those who bought the dip in the first hour must be happy they bought at seemingly "value" prices.

      That's the problem. We won't know until we have hindsight weeks later.

      If next week STI continues to drop another 10% moving forward, those who sold this morning will be feelings so smug they now have the recycled funds to buy at lower prices.

      While those bought the dippers today will regret catching a falling knife...

      I guess that's why there's a market! There's always someone taking the opposite position from us. And that's very humbling.

      Delete
    8. smol, you are "sinking" deeper and deeper haha.

      i short not becos i know the market is coming down, you know i've been short for a while and straggle, only now i can relief a little.

      my point is no one knows where the market is going, how can you know? guessing is not part of trading, and surely you can't do it in investing.

      i'm very sure CW and AK will not tought any of their shares even if goes down 50%. they are looking to buy more or re-positioning. did you get the point?

      this message is not for you to read and understand, its for AK and CW alike.

      Delete
    9. but if you want to play the market, then its nothing but just gambling, i wouldn't advise people from not gambling, its their money.

      Delete
    10. don't think that traders make their money by correctly predicting the market! those who can, LC to them!

      i've been trading almost 20 years and i still cannot predict the market direction! but i can make money not able to predict. those who can predict or think they can predict most likely are loser.

      understand?

      Delete
    11. if you want to make money, forget about trading.

      pay big attention to CW and AK, especially in current enviroment where opportunities will arise and hopefully many more to come.

      lousy investor make money during the bull market while good investor make money from the bear.

      Delete
    12. Coconut,

      Thanks for sharing ;)

      1. Very humbling to hear a trader for 20 years say forget about making money in trading. I've learnt a lot from the experiences of Fat too.

      It's not easy I know. My trading losses are great reminders! Lucky still in the green futures account wise so far.

      Trading is not my main bread and butter - it's kopi money. And I find there are many great lessons that can apply to my core holdings.


      2. My core holdings are my priorities. Since I have no desire to see my core holdings go down 50%, I'll stick with my strategy of trading around a core position. (Applying what I've learnt with trading)

      Contrary to you, I need to have my own opinion on the markets.


      3. AK and CW are great sparring partners and sounding boards for me to test my own thinking :)

      I'm not a "ya lor ya lor" fan boy.

      I take counsel and seek out opinions of both bear and bears. But at the end of the day, I'll have to make my own independent decision.

      Paying too much attention to others may inhibit my own growth and development ;)

      Delete
    13. "Since I have no desire to see my core holdings go down 50%..."

      "you shouldn't be investing at all" is my frank opinion.

      Delete
    14. Hence I don't call myself "an investor".

      I'm an equities man-whore. A better counter comes along I will switch! (I'll forget about sitting tight for the 10 bagger, LOL!)

      You have an interesting view on "investing"!

      You mean you will sit tight with a 50% loss in investing?

      Surely you don't do so with your trading? You have 2 sets of rule then?

      For me, I am unifying the rules and my lessons from trading into my core holdings.

      Delete
    15. ofcos! why would i want to sell? its so cheap i would buy more.

      i don't have 2 set of rules, only 1 set for trading.

      investing i talk talk only, its free to talk but you never know, i might one day needed it.

      by the way, should i bring in my investing rules (er i think i have one haha) i will throw those trading rules in the dusbin.

      Delete

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