Insights | Financial News & Trends | Leeburn Financial Planning

27 June 2023

Recency bias – the scourge of investors

Unfortunately, as humans, we are poorly neurologically wired to be good investors. Our brains promote survival instincts - such as fight and flight, fear and greed and an aversion to losses – help us to survive but can lead us into bad investing ways. For many investors a propensity to place too much weight on recent events in terms of what the future may look like is quite common. This is known a ‘recency bias’. Charles Schwab, a major US broker, sponsored some research on its own client base to identify which behavioural biases predominate in their clients and recency bias was the one most commonly exhibited . Around 50% to 60% of all investors appear to suffer from recency bias, and the number is even higher for younger investors, possibly due to the influence if social media.

30 May 2023

Why shorter-dated, high-quality, hedged bonds?

Bonds play an important role in most investors’ portfolios, providing more certain outcomes than equities for more cautious investors at the price of lower returns, and downside protection at times of equity market trauma for more adventurous investors. Bonds, however, are not all the same, ranging from cash-like to more equity-like. So, the choices that an investor makes are important. Let’s take a look at the three key choices in turn.

11 May 2023

Just a few stocks drive market returns

It is sometimes easy to forget that when markets rise and fall, we are looking at this through an aggregated, market-capitalisation weighted lens. In reality, the fortunes of individual companies and even sectors may be quite disparate over both the short and longer terms. Take a look at the figure below that illustrates just how widely dispersed US stock outcomes have been year-to-date 2023 (to the end of April). The S&P 500 is up by around 9% in USD terms (4% in GBP terms as Sterling has strengthened against the US dollar). In the first quarter of 2023, the top ten contributors to performance accounted for 90% of the market rise, with Apple, Microsoft and Nvidia contributing to half of the rise. Yet in 2022 the top ten companies by size collectively fell 37% compared to the market fall of around 18% .

2 May 2023

FAKE NEWS!! Active outperforms passive!!

Unfortunately we now live in a world of fake news and ‘alternative facts’ where parties shamelessly push their own agenda at the cost of salient facts. In order to be heard in the noise of social media, research headlines need to be bigger and more eye-catching. For those investing using an evidence-based approach that means it is important to make sure that any evidence being reviewed is based on true facts, reliable data and sound research methodologies.

27 April 2023

Don’t just take our word for it!

We fundamentally believe that a systematic approach to investing provides the best chance of experiencing a successful investing journey. Sticking to some key guiding principles – which are grounded in evidence and logic – gives investors a solid foundation on which to build a sensible investment solution. This short note provides an insight into five of our favourite insights from experienced and accomplished academics and practitioners and explains how these words help us plant our investment philosophical flag in sensible space.

31 March 2023

Anchors aweigh

By and large, behavioral science suggests that human beings make lousy investors. Whilst we are excellent problem solvers, we suffer from a whole host of well documented biases that, on average, erode the investment returns on offer from markets . Being aware of our biases is a useful exercise if we are to limit the impact that they have on our decision making. In this short note, we look at both anchoring – the tendency to be influenced by a particular reference point or ‘anchor’ – and recency bias – the tendency to overemphasize the importance of more recent experiences relative to less recent ones.

28 March 2023

Lessons from a legend

The investment management industry loves its legends and there is none bigger than the nonagenarian ‘Oracle of Omaha’ Warren Buffett, CEO of the US-listed firm Berkshire Hathaway. Over the years in that role Buffett has built a portfolio of directly held companies alongside a portfolio of listed stocks. Today, he is worth over US$100 billion and is the world’s fifth wealthiest person. In anyone’s eyes, he is a highly successful investor and is often held up as a beacon in support of an active, judgmental approach to investing. Paradoxically, Warren Buffett’s legendary status as an active investor provides some useful lessons in support of adopting a systematic, low-cost approach to investing

15 March 2023

Lessons from Silicon Valley Bank’s demise

The spectacular work ‘Another Place’ by the British sculptor Antony Gormley , of one hundred naked men scattered along 1.5 miles of Crosby Beach in Liverpool, provides a useful twice-daily reminder about hidden risks in the financial world. As Warren Buffet once said about easy money and favourable markets hiding risks: ‘You only find out who is swimming naked when the tide goes out.’

16 February 2023

Avoid predicting the unpredictable

Each year, investors face a barrage of commentary and speculation from the financial press about which stock, sector or country is set to do well in the coming months. The quotes below are taken from articles published by well-known media outlets and demonstrate that 2023 is no different:

18 July 2022

Who let the dogs out?

Sometimes we read an investment article that makes our blood boil. One regular such item is Bestinvest’s ‘Spot the dog – the guide fund managers would love to ban’ report. This report would be laughable if it did not have such a potentially serious impact on investors’ wealth. It is often quoted in the Sunday papers and can influence many DIY investors (those who do not seek advice) in their fund buy and sell decisions, despite the caveats that Bestinvest provide. It can also unsettle sensible long-term investors if they see a fund on the list that their adviser has recommended. While we have no problem calling out poor value for money in funds – which is far too common - the methodology used to identify ‘dogs’ is blunt to the point of being unhelpful.

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