Quotes of the Day: Beware the happy (or sad) theorist, and yourself…

It’s so interesting reading the deeper analyses of the strategists and economists whose work I respect.

It just occurred to me as I read the most recent deep dive of a firm that typically leaves few stones unturned, that they’re somewhat subtly, and I suspect unwittingly, tipping their hand in terms of what I can only describe as their innate bias.

So they’re bullish, and that I can (or I’d like to) presume is a result of their research, and that’s good. But today I’m thinking they have a proclivity toward bullishness — and that’s not good. 

Here’s one of the lines that inspired me to write this note:

“…we like to see strength during the trading day because in the past when we’ve seen intraday weakness, it has led the broad market to eventually roll over.”

Operative words (the red flag) there being “we like to see.” 

That’s the “not good” part in my estimation. Analyses should be performed with abject objectivity. For, when we like something, we humans tend to be drawn to evidence that supports it — and/or we tend to interpret evidence that conflicts with our liking in… well… a manner to our liking.

In the words of Sherlock Holmes:

“Inevitably, one begins to twist facts to suit theories instead of theories to suit facts.”

And Nasim Taleb:

“The problem is that our ideas are sticky: once we produce a theory, we are not likely to change our minds—so those who delay developing their theories are better off.

When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate.

Two mechanisms are at play here: the confirmation bias that we saw in Chapter 5, and belief perseverance, the tendency not to reverse opinions you already have.

Remember that we treat ideas like possessions, and it will be hard for us to part with them.”

And yours truly:

I keep seeing these one-off data points, and these deep creative explanations that do nothing more than satisfy certain folks’ biases, and data mining activities, and make the author look smart… It risks distracting folks away from on-the-ground reality…”

The bears and the naysayers always sound smarter than the Pollyannas… Better to be neither… Better to be humble, and simply be what conditions dictate…”

 

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