learning my irrational mind
Welcome to my world.
I’ll be using this blog as a canvas for my thoughts and ideas as I go about researching my phd in behavioural finance and tying this in with my personal trading in the stockmarket.
I’ve been buying and selling shares since I could legally open an account with an online broker when I was 18. I say ‘buying and selling’ instead of the word ‘trading’, as trading seems to carry the connotation of always holding only a short term position. At times I have lost and been demotivated enough to leave the markets for a while, but I always seem to return and seemingly learn from the mistakes I made. I find the markets so enthralling that it is no surprise that I now devote my studies towards them and am now embarking on a phd in behavioural finance, or the psychology of trading.
I believe you can consistently make money in the markets, and I believe the way to do this is through learning and recognising the characteristics of psychology in one’s trading behaviour. There are people out there that have an innate ability (albeit not without a steep learning curve) to ‘feel’ the market - I know it sounds cheesy and cliche but stay with me - and it is these people that although may never have documented their ability to recognize fear, greed and the plethora of other pyschological heuristics, at any one point in time would act on them in a way that will result in a profit. These are the skills I aim to hold.
Over the months and years I hope to document the lessons I have learnt from the irrational behaviour that drives the markets (hence the title of this site, irrational minds). In a way I wish I had done this for the past years too, but I dont doubt I will revisit these in due course. To many my amature understanding of the markets will stick out like a sore thumb and I’m sure I will blurt out personal discoveries with amazement that to some people are as obvious as daylight. I hope these people will leave comments and correct me - Ultimately I’d love this to be a community for all people with interest in the psychology of the markets to come together and teach each other.
2 Comments, Comment or Ping
Abe
Very cool. You’re further along the course that I’ve set or myself recently. I’m only an undergrad in an economics program, but I too am fascinated by the obvious irrationalities I’ve already seen glossed over by traditional economics. Which is not to say that the traditional has nothing to offer: obviously it’s done Warren Buffet right. But rather, I think there’s room at the margin exploit the inefficiencies of traditional economics/finance. Behavioral finance, to me, is just the natural evolution of a market always in search of the most efficient form of equilibrium. It kills me when my professors say “markets are unpredictable” and then proceed to illustrate just how unpredictable they are; which to me is a bizarre form of predictability. It’s like saying the weather is unpredictable–yet we know that the weather is only so variable. When the weather does its thing it will either rain, snow, shine, or blow…or some combination of the above. If you want to know exactly which one it will do tomorrow, or in the next hour, I suppose it’s unpredictable. But, you can be sure it will do something. Trading and markets are the same. Somewhat unpredictable in the specifics, predictable in that the will shift. One of the most famous off-the-cuff remarks caused a significant drop in the stock markets worldwide even though it was based on absolutely zero relevant, current, insider information. I’m referring to when Greenspan was heard to describe markets as “irrationally exuberant.” If a comment like that can sink markets in as real a way as real performance data or expected earnings reports…well, then, we have some level of predictable unpredictability.
Anyway, all of this is entry level musings from your average economics undergrad: me. Glad to have found your blog. I’ll follow it!
Abe
Mar 5th, 2008
mikey
Hi Abe, thanks for your comment. Interesting your thoughts on markets continually evolving in their efficiency, and possibly that behavioural finance is an embodiment of this. I wonder then what the effect will be when behavioural finance is acedemically accepted in the mainstream, taking its rightful place as compulsary introductory subjects in economics courses for instance. Will the knowledge of the inefficiencies of the markets, now ingrained in every economics student, serve to completely erradicate those inefficiencies? Just as arbitrage opportunities have been whittled away by algo trading and automated DMA/arb engines, will the bubbles, mirages and overreactions caused by our inbuilt heuristics of greed and fear be far less common than today? Or will they not even have a chance to appear? Will we serve to work with the effects of our actions as irrational agents in the markets, rather than against (eg. continue to short a stock that has breached a psychological price point because we know that people will continue to sell down out of fear). I tend to think the former, that we will continue to work with the irrationalities, but it really is food for thought.
As you might have noticed not a lot has been posted recently, but hoping this will change shortly. If you like you can subscribe via the email subscription box at the top of the page, this way you will know as soon as I have posted new content.
Cheers,
Mikey
Mar 16th, 2008
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