If you are anything like me you probably over indulge a little too much on the sweets and other goodies during the Xmas period and try desperately to limit the amount you ingest in the New Year in the hope that a) you will feel a bit healthier and b)you will lose some weight. You might also be injecting a new exercise routine into your life.
1. A bat and a ball cost €1.10 in total. The bat costs a euro more than the ball. How much does the ball cost?
2. If it takes five minutes for five machines to make five widgets, how long does it take 100 machines to make 100 widgets?
3. In a lake there is a patch of lily pads. Every day the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long will it take to cover half the lake?
And the answers are as follows:
1. €0.05: (if the ball costs €0.05 then the bat must cost €1.05 and therefore the total cost is €1.10…did you answer €0.10?. I did)
2. 5 minutes. (The usual answer is 100 minutes). If it takes five minutes for five machines to make five widgets then the output is one widget per machine per five minutes. Therefore 100 machines would take five minutes to make 100 widgets.
3. 47. (The common answer is 24 days) . But if the patch doubles in size each day then the day before it must have covered half the lake, hence the answer is 47 days.
Don’t worry if you got one or all three questions wrong, only about 17 percent of people get all 3 correct and 33% get none right.
Well, I have news for you! 2015, from a financial markets perspective is likely to feel like one long New Year cold turkey. But before I get into the detail, I would like you to take a New Years test.
Here are 3 questions that I would like you to answer quickly in your head:
2. If it takes five minutes for five machines to make five widgets, how long does it take 100 machines to make 100 widgets?
3. In a lake there is a patch of lily pads. Every day the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long will it take to cover half the lake?
And the answers are as follows:
1. €0.05: (if the ball costs €0.05 then the bat must cost €1.05 and therefore the total cost is €1.10…did you answer €0.10?. I did)
2. 5 minutes. (The usual answer is 100 minutes). If it takes five minutes for five machines to make five widgets then the output is one widget per machine per five minutes. Therefore 100 machines would take five minutes to make 100 widgets.
3. 47. (The common answer is 24 days) . But if the patch doubles in size each day then the day before it must have covered half the lake, hence the answer is 47 days.
Don’t worry if you got one or all three questions wrong, only about 17 percent of people get all 3 correct and 33% get none right.
Only 40% of professional investment managers get all 3 right!
This leads me onto the point of this exercise. It is one of mastering control over our natural urges because our brains are wired in 2 different ways which affect our financial decisions.
This leads me onto the point of this exercise. It is one of mastering control over our natural urges because our brains are wired in 2 different ways which affect our financial decisions.
The first way is our emotional reaction. This is the system whereby, faced with any set of information, this part of our brain makes an instinctive response. It is the fight or flight part of the brain and serves us well in situations where decisions need to be made quickly.
However, it does not serve us so well when problems need to be thought out rationally, as in the questions above. This requires another centre of our brains and this part works more slowly than the emotional centre. In fact research shows it is about 3 times slower (we are talking milliseconds though, so slow needs to be taken into perspective).
Tests show that we (all of us, without exception) are prone to being over emotional about money and, as such, we make decisions based on impulse, ambiguous information, shifting goals, high stress levels and when decisions rely on interaction with others.
2015 is highly likely to be a very volatile and emotional year in financial markets. Volatility, uncertainty and political decisions will dominate.
Tests show that we (all of us, without exception) are prone to being over emotional about money and, as such, we make decisions based on impulse, ambiguous information, shifting goals, high stress levels and when decisions rely on interaction with others.
2015 is highly likely to be a very volatile and emotional year in financial markets. Volatility, uncertainty and political decisions will dominate.
Unfortunately for us, we are wired to react in an emotional way when it comes to these very same stimuli.
2015 could throw some interesting events our way. A possible Greek exit from Europe (unlikely but not impossible), debt defaults in student debt, emerging market debt, shale oil corporate debt, to name a few, quantitative easing from Mario Draghi, the US raising interest rates, Russia and the EU agreeing a compromise over the Ukraine, Japan printing more money etc etc. The list almost seems limitless for the year ahead.
2015 could throw some interesting events our way. A possible Greek exit from Europe (unlikely but not impossible), debt defaults in student debt, emerging market debt, shale oil corporate debt, to name a few, quantitative easing from Mario Draghi, the US raising interest rates, Russia and the EU agreeing a compromise over the Ukraine, Japan printing more money etc etc. The list almost seems limitless for the year ahead.
However, in all the chaos we can find calm. The world has been through similar experiences and a lot worse in the far and recent past. Finding the calm is about knowing of and understanding some of those historical events and remaining open minded.
As one billionaire investor once said, "the more you think you know, the more closed minded you will become" (take a moment to think about that).
The main lesson from history is that we live in a continually changing and uncertain world and from a finance and markets point of view it is pointless to try and predict the direction of markets. No financial crisis has ever been predicted nor has any predictable trigger event for a financial collapse ever been identified...ever!
Of course there is always the lucky economist who will write that the markets are about to collapse, just as they do, but there is a big difference between "He predicted the crash of 2008" and "He predicted crashes, one of which happened to be 2008".
Living with uncertainty is a very difficult thing to do, but success in investing comes with the caveat attached.
As Warren Buffet said in one of his, now famous, annual meetings for Berkshire Hathaway:
"The most dangerous thing about investing is NOT being invested".
If you would like to discuss this, are concerned about the effects of the year ahead on your money or would like more information then feel free to get in touch on gareth.horsfall@spectrum-ifa.com or on my cell 3336492356
--------------------------------------------------------------------
The Spectrum IFA group is a registered trademark, exclusive rights to use in Italy granted to TSG Insurance Services S.A.R.L. Italian Branch: Via Livorno 45, Piano 1, Interno, 00162 Roma, Siège Social: 34 Bd des Italiens, 75009
Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384) No d'immatriculation 07 025 332 - www.orias.fr
« Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l'Autorité des Marchés Financiers»
Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384) No d'immatriculation 07 025 332 - www.orias.fr
« Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l'Autorité des Marchés Financiers»
No comments:
Post a Comment