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  1. Tuesday, January 20th, 2015
    confidence game

    Seth Klarman once said, “You need to balance arrogance and humility . . . when you buy anything, it’s an arrogant act.”  However, “you need the humility to say ‘but I might be wrong.’  And you have to do that on everything.”Santangel’s Review | The quotes come from an interview with Charlie Rose.

    Or, as Barbara Kruger’s installation at the Hirshhorn Museum in Washington, D.C. yells out in bold letters:  “BELIEF + DOUBT = SANITY.”Hirshhorn Museum | Here is the Hirshhorn’s information about it.

    It’s important to note that without a certain amount of confidence, we wouldn’t get very far.  As individuals that’s true and the same goes for organizations.  We are in the business of taking risks, and having the confidence to do so is an essential part of the recipe for success.  But how much of it is warranted?  A dash, a smidgen, a dollop?

    Unfortunately, we know from research study after research study ... continues

  2. Tuesday, December 30th, 2014
    conceptual front ends

    More than thirty years ago, Robert Sinclair wrote “Thinking and Writing: Cognitive Science and Intelligence Analysis.”  In 2009, it was republished by the Center for the Study of Intelligence, a unit of the CIA, where Sinclair had worked.  The monographCenter for the Study of Intelligence | This is the later version, which includes a new introduction and the original work. is worthwhile reading for anyone involved in investment decision making.  (I became aware of it as a result of a posting by Miguel Barbosa on SimoleonSense.SimoleanSense | There are a variety of good readings curated by Barbosa; this is his summary of the Sinclair piece.)

    Many of the ideas addressed by Sinclair in the original manuscript have been popularized over the intervening years, but even now, “we have not absorbed the science into the way we think about our analytic jobs.”  That characterization fits the investment ecosystem as well.  For example, the ideas of behavioral finance ... continues

  3. Monday, December 8th, 2014
    dumb groups

    The rise of behavioral finance has led to a widespread awareness of the human inclination to veer away from logical decision making,The Psy-Fi Blog | Here’s one compilation of those failings, “The Big List of Behavioral Biases. although most of us seem to get caught in the same traps over and over again anyway, even though we are aware of our tendencies.  I know I do.

    On the other hand, the popular notion is that there is a “wisdom of crowds” (even though that’s likely to be true only under certain circumstances).  There are, of course, many times when the crowd goes astray, sometimes helped along these days by our electronic tools and their reinforcing algorithms.  (No market commentary intended, although some readers might take it that way.)

    In between the individual and the crowd are small groups of people trying to make decisions together.  We live in a world of organizations.  Since this forum is devoted to those who roam the investment ... continues

  4. Monday, December 1st, 2014
    points of failure

    A week ago, the lead segment on 60 Minutes highlighted the decrepit state of infrastructure in the United States.60 Minutes | The video and transcript of the piece are available here, along with extra material.  In case you thought that the collapse of the I-35W bridge in Minneapolis would have caused some action, think again.  Since that tragedy in 2007, inaction has been the order of the day.

    That despite business and labor being on the same side of an issue for once — and almost everyone talking about the need to do something to address the infrastructure weaknesses before another calamity occurs.  A secondary theme of the 60 Minutes piece was the depressing effect the lack of investment is likely to have on the economy going forward.

    Our elected officials seem to have a risk management philosophy that involves risks not being dealt with until the moment at which they can’t be ignored any longer.  (In that, the politicians are similar to investment managers who have ... continues

  5. Wednesday, November 12th, 2014
    cracking the narrative

    Asset managers need to create a narrative about what they do and how they do it.  Lacking a story, it’s all about the numbers.

    You might say, “Well, that’s the way it should be.  This is a performance game.”  Except that’s unrealistic.  Everyone has periods of underperformance and clients who lack understanding of an asset manager’s approach are more likely to bolt at the wrong time.  That’s typically bad for the clients and obviously bad for the manager.

    To be clear, creating a narrative that is dishonest and manipulative is not a tenable long-term strategy (in addition to being just plain unethical).  On the contrary, trust is built through transparency, awareness, and education about the real way an asset manager navigates the markets.

    The narrative should be effective and truthful.  If you don’t have a powerful story to tell, you’re going to have a hard time of it and will be fighting a one-dimensional battle for assets ... continues