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Charts, Cliffs and Cavemen...

1/4/2013

8 Comments

 
People in the financial services industry LOVE charts, especially ones with upward sloping lines. Charts, replete with disclaimers basically saying that you should not pay any attention to charts, have been the go-to-sales-tool for financial professionals since I can remember. For all I know, our great great great ancestors drew charts on their cave walls in an effort to persuade (er, advise) their cave mates.

However, this is not a history lesson about charts, per se. Rather, it is a non-academic (caveman's) look at what we can learn from going over a cliff. The series of charts below tell a rather interesting, albeit anecdotal, story. The moral of that story is that our perceptions (and resulting decisions) are often influenced by our current reality. 
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Illustration by Andertoons
Those who study behavioral finance sometimes refer to this as extrapolation bias. It's damn hard to see a 6,000-point rally coming when you have just witnessed (suffered) a 7,000-point blood letting. The paradox is that, the closer you are to action, the more difficult it is to see around the bend.

Speaking of seeing around the bend, I had the good fortune of meeting and interviewing a man by the name of Verne Wheelwright several years ago. Verne wrote a terrific book called, It's Your Future: Make It A Good One. According to the World Future Society, an organization to which Verne and I both belong, FORESIGHT, is the most important skill one can develop for the 21st Century. I could not agree more, which is why I included this as a category in my new Wealth Management Bookstore.

In any event, the purpose of this slog post (as always) is to get you thinking. Hope you find this helpful.

Click on images to enlarge...

Looking back from the far side of the chasm...

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It's twue, it's twue, hindsight IS 20/20

View from the top...

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I feel good! Think I'll go to a seminar and learn how to flip real estate...

Click on images to enlarge...

View from the bottom...

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Damn, that hurt. I think the world is coming to end...

Déjà vu all over again...

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The World Future Society says that the most important skill one can in the 21st Century is "foresight." Maybe I should look into this...

Explore Some More

  • Behavioral Finance, Bloomberg
  • Behavioral Finance: The High Cost of Emotional Investing, CFA Institute
  • Psychology and the Financial Crisis of 2007-2008, Nicholas Barberis, Yale School of Management
  • U.S. household wealth falls $11.2 trillion in 2008, Reuters
  • It's Your Future: Make It A Good One, Verne Wheelwright
  • Personal Futures Website, Verne Wheelwright
  • Interview with Verne Wheelwright, Author / Futurist
  • Interview with Tim Mack, World Future Society
  • Dictionary of Foresight, World Future Society
  • Books on Foresight & Related Topics, WealthManagementBooks.com
  • World Future Society

Advisor Survey Conducted at Market Bottom
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