The Better Letter
Above the Market
by Bob Seawright
3y ago
Most of my writing these days is for my weekly newsletter. Check it out here ..read more
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Inherent Uncertainty
Above the Market
by Bob Seawright
4y ago
My darling bride and I are walking for an hour a day during Lent. As it turns out, that commitment became much easier to uphold than I had expected. On one of those recent walks, we happened by a local house of worship, the site of the Poway synagogue shooting almost a year ago, about half-a-mile from our house. We stopped to look at the small memorial there, a grim reminder, as if COVID-19 weren’t enough of one, that the rain falls on the just and unjust, as Jesus said. Usually we think that means life happens, bringing everyone burdens and blessings. Today, however, everyone is getting wet ..read more
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What Do Market Recoveries Look Like?
Above the Market
by Bob Seawright
4y ago
Since 1871, market downturns have recovered as follows: 33 percent of market downturns recover within a month; 50 percent of market downturns recover within two months; 80 percent of market downturns recover within one year; and 95 percent of the time those big “once or twice in a lifetime drops” return to even in three to four years. Collectively, the average time it takes for the market to recover (top to trough to top again) is 7.9 months ..read more
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Punched in the Face
Above the Market
by Bob Seawright
4y ago
When I was a ninth-grader, my high school showed Alfred Hitchcock’s classic horror film, Psycho, in the school auditorium on a snowy Friday night. I desperately wanted to be and look cool, but when Martin Balsam’s Detective Arbogast climbed the stairs in the old house behind Bates Motel to meet Mother, I dove under my seat in terror. I didn’t climb stairs in the dark without shuddering for years. Warning: The clip below is violent and still scary. Investors have to face fear every day, more so on some days than others. To quote Jason Zweig paraphrasing Mike Tyson, “investors always have a pla ..read more
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Wash Your Hands
Above the Market
by Bob Seawright
4y ago
No instruction has been more consistent throughout the coronavirus crisis than the insistence that we wash our hands. Pretty much all the time. A lot more thoroughly and for a lot longer than we’re used to. The reminders are insistent, too, and sometimes annoying. But they are important. Therefore, it is appropriate that we recall the tragic story of the patron saint of hand-washing. He’s Ignaz Semmelweis, a 19th Century Hungarian obstetrician who found lasting scientific fame, but only posthumously. Semmelweis discovered that the often-fatal puerperal fever, sometimes called “childbed fever ..read more
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Crisis Market Diary: A Decade-Week
Above the Market
by Bob Seawright
4y ago
As the saying goes (often falsely attributed to Lenin), there are decades where nothing happens, and there are weeks where decades happen. We just lived through one of those decade-weeks. It “was a week of escalation. Of the coronavirus and the countermeasures. Of the economic hit and the policy response. Of investor fear and market stress. In the space of six days, warning lights flashed in the deepest recesses of global markets, a decade’s worth of monetary action, and a scramble for liquid assets surpassing any that went before.” Here’s how the 11-year bull market unraveled. The Federal Res ..read more
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Top Ten Behavioral Biases, Illustrated #10: Often Wrong But Never in Doubt (Bias Blindness)
Above the Market
by Bob Seawright
4y ago
“A person is smart. People are dumb, panicky, dangerous animals and you know it.”   We all suffer from the cognitive and behavioral biases I have been highlighting in this series. Lots more, too. We’re often “dumb, panicky, dangerous animals.” These biases threaten any hope we might have of objective analysis, especially about the things that are closest to us and in which we have the most invested. We don’t perceive the world nearly as well as we think we do. Most especially, we aren’t as self-aware as we think we are. If we are aware at all, we will frequently recognize these behaviora ..read more
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Top Ten Behavioral Biases, Illustrated #9: Fighting the Last War (Recency Bias)
Above the Market
by Bob Seawright
4y ago
By every objective measure, Joe Flacco is a decent, but not great, NFL quarterback. However, he parlayed one great playoff run into a Super Bowl championship and a huge contract. ESPN’s Merrill Hoge decided that one great run over a very small sample size that included a Super Bowl turned Joe Flacco into the best quarterback in the NFL. That’s recency bias – our tendency to overweight and overemphasize what just happened over the broader body of evidence. Oh, and by the way, after that great run, Flacco went back to being okay but not great. Its close cousin is the availability heuristic, whe ..read more
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Top Ten Behavioral Biases, Illustrated #8: I Knew It All Along (Hindsight Bias)
Above the Market
by Bob Seawright
4y ago
Hindsight bias occurs when people feel that they “knew it all along,” that is, when they believe that an event is more predictable after it becomes known than it was before it became known. It is closely related to outcome bias, whereby we evaluate a decision by the outcome it generates. In 2009, with his team leading 34-28 late but backed up at their own 28-yard-line with two minutes left and needing two yards for a first down, New England Patriots’ coach Bill Belichick chose to go for it on fourth down to try and keep the ball out of opposing quarterback Peyton Manning’s hands. Although it ..read more
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Top Ten Behavioral Biases, Illustrated #7: Planning is Guessing (the Planning Fallacy)
Above the Market
by Bob Seawright
4y ago
It’s a weekend tradition of sorts. On Friday evenings when I’m home, I outline what chores I plan to get done around the house on Saturday and what I need to buy to complete them. Inevitably, however, it takes a lot longer to do my chores than I expect and I routinely need to make multiple visits to Home Depot for supplies because I’m missing something (or multiple somethings). And the results aren’t often great. Nearly all of us overrate our own capacities and exaggerate our ability to shape the future. British Prime Minister Lord North, on dealing with the rebellious American colonies, in ..read more
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