‘Feeling Certain’ and Other Mistakes That Trip Up Investors Surging stocks make investors feel smart. Pay heed to the many ways you can go wrong.
(…) Here are nine mistakes to watch out for:
Feeling certain. (…) There are no certainties in markets, only probabilities. It is far better to trust someone who says there is a 60% chance that the market will rise this year than someone who guarantees it. The graveyard of poor investing decisions is filled with people who left no room for error in their forecasts.
Extrapolating the recent past into the future. People have a burning desire to forecast, and minds have a burning desire to follow the path of least resistance. The easiest, and often most common, forecast is to assume the future will resemble the recent past. (…)
People selling financial products on commission. (…) Self-interest is one of the most powerful forces in the world and can influence otherwise good, honest people to put their pocketbook before yours. (…)
Feeling smarter after the market rises. (…) If you have done great as an investor over the past five years, check your ego at the door. Almost everyone has done well. The true test of investor skill is how you react during times of panic and distress.
Feeling victimized after the market drops. (…) The more victimized you feel after a market drop, the less likely you are to learn how normal and inevitable these drops are. Learn more and complain less, and you will be better off in the long run.
Letting partisan views guide your investment decisions. (…)
Worrying about things you can’t control. You have no control over what the Federal Reserve will do next, who will win the next election, whether a company will meet earnings expectations, OPEC’s oil-output decisions or the next monthly jobs report.
You do have control over your own expectations, asset allocation, reactions to market volatility and the people you choose to listen to for financial advice. Use the time and energy devoted to the former to improve the latter.
Refusing to change your mind when the facts change. In financial punditry, points are awarded for confidence and consistency. People love a pundit who pounds the table, foretelling the future without wavering an inch. Indeed, in 2013 two economics graduate students from Washington State University showed that confidence trumped accuracy when measuring the popularity of pundit predictions.
While confidence and consistency make for good entertainment, humility and open-mindedness makes for better advice. The analyst who isn’t afraid to say, “I don’t know” and “I’ve updated my forecast now that information has changed” may never be popular, but he or she is the one you want to listen to.
I will add another one:
Don’t feel bad if you missed something. Only learn from your decisions. It is more important not to lose money than to act like a headless hen. You missed something? Believe me, there will be something else eventually. Better to have dry powder than little or no powder at all.
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Iran on the Nuclear Edge Official leaks suggest the U.S. is making ever more concessions.
(…) On Wednesday Mr. Kerry denied that a deal would include the 10-year sunset, though he offered no details. We would have more sympathy for his desire for secrecy if the Administration were not simultaneously leaking to its media Boswells while insisting that Congress should have no say over whatever agreement emerges.
The sunset clause fits the larger story of how far the U.S. and its allies have come to satisfy Iran’s demands. The Administration originally insisted that Iran should not be able to enrich uranium at all. Later it mooted a symbolic enrichment capacity of perhaps 500 centrifuges. Last July people close to the White House began talking about 3,000. By October the Los Angeles Times reported that Mr. Kerry had raised the ceiling to 4,000.
Now it’s 6,000, and the Administration line is that the number doesn’t matter; only advanced centrifuges count. While quality does matter, quantity can have a quality all its own. The point is that Iran will be allowed to retain what amounts to a nuclear-weapons industrial capacity rather than dismantle all of it as the U.S. first demanded.
Mr. Kerry also says that any deal will have intrusive inspections, yet he has a habit of ignoring Iran’s noncompliance with agreements it has already signed. Last November he insisted that “Iran has lived up” to its commitments under the 2013 interim nuclear agreement.
Yet even then Iran was testing advanced centrifuge models in violation of the agreement, according to a report from the nonpartisan Institute for Science and International Security. In December the U.N. Security Council noted that Iran continued to purchase illicit materials for its reactor in Arak, a heavy-water facility that gives Tehran a path to a plutonium-based bomb.
The International Atomic Energy Agency reported last week that Iran was continuing to stonewall the U.N. nuclear watchdog about the “possible military dimensions” of its nuclear program. On Tuesday an exiled Iranian opposition group that first disclosed the existence of Tehran’s illicit nuclear sites in 2002 claimed it had uncovered another illicit enrichment site near Tehran called “Lavizan-3.” The charge isn’t proven, but Iran’s record of building secret nuclear facilities is a matter of public record.
As for the idea that the IAEA or Western intelligence agencies could properly monitor Iran’s compliance, a report last year from the Pentagon’s Defense Science Board is doubtful. “At low levels associated with small or nascent [nuclear] programs, key observables are easily masked,” the board noted.
This is significant since the Administration insists that any deal will give the U.S. at least one year to detect and stop an Iranian “breakout” effort to build a bomb. Iran’s ballistic missile programs aren’t even part of the negotiations, though there is no reason to build such missiles other than to deliver a bomb.
The Administration’s emerging justification for these concessions, also coming in leaks, is that a nuclear accord will become the basis for a broader rapprochement with Iran that will stabilize the Middle East. As President Obama said in December, Iran can be “a very successful regional power.”
That is some gamble on a regime that continues to sponsor terrorist groups around the world, prop up the Assad regime in Syria, use proxies to overthrow the Yemen government, jail U.S. reporter Jason Rezaian on trumped-up espionage charges, and this week blew up a mock U.S. aircraft carrier in naval exercises near the Strait of Hormuz.
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Given how bad this deal is shaping up to be, it’s not surprising that U.S. allies are speaking out against it. “We prefer a collapse of the diplomatic process to a bad deal,” one Arab official told the Journal last week. Saudi Arabia has also made clear that it might acquire nuclear capabilities in response—precisely the kind of proliferation Mr. Obama has vowed to prevent.
No wonder many in Congress want to hear Israeli Prime Minister Benjamin Netanyahu next week. They look at all of this public evidence and understandably fear that the U.S. is walking into a new era of nuclear proliferation with eyes wide shut.
From Foreign Affairs:
Undivided Tehran Khamenei and Rouhani’s Joint Strategy at the Nuclear Talks
(…) Rouhani and Zarif sold the nuclear talks to Khamenei by arguing that since Tehran is open to negotiations, the onus is on Washington to produce a feasible deal. “If because of excessive demands…we don’t get a result, then the world will understand that the Islamic Republic sought a solution, a compromise, and a constructive agreement and that it will not renounce its rights and the greatness of the nation,” Zarif told the Iranian media after a November 2014 session of negotiations in Vienna. In turn, Khamenei sold the nuclear talks inside and outside of the governing system by arguing that engagement with Washington means the onus will be on Iran’s rival to compromise. “The honorable President [Rouhani] raised a good point in a speech, which is: Negotiation means that the two sides should try to reach a common point,” he said in his February 8 speech. “Well, this means that one side should not try to achieve everything it wants and expects. However, the Americans are like this. They … say that everything they want should be achieved exactly as they want it. Well, this shows their greed and this is wrong. This is not a way to negotiate. The Iranian side has done whatever it could to reach an agreement.” If the talks fail, Khamenei will almost certainly say “I told you so,” but he will continue to offer public support for negotiations in order to show that it is Washington, not Tehran, that is unwilling to resolve the standoff.
In short, both Khamenei and Rouhani have positioned themselves so that they can not truly lose. If the nuclear talks fail to produce a deal, neither Khamenei nor the Iranian people will blame Rouhani and Zarif because they can accuse Washington for paralyzing the negotiations, and Rouhani and Zarif (and by extension, the Iranian people) will not blame Khamenei for the same reason. Not only will political unity appear largely intact but Iranian officials will also have shifted the blame for failed talks back onto the United States.
The hawks in Washington who are against any negotiations with Iran will most likely not relent in pursuing new sanctions. For them, a nuclear deal with Tehran is like Obamacare: they will continue their efforts to sabotage it long after it is signed, sealed, and delivered. With that in mind, it is important for Washington to remember Iran’s motivations to maintain unity and shift blame as it engages in nuclear negotiations. If American hawks get in the way of a deal, not only will Washington fail to coax Tehran into more concessions or capitulation—they just might help strengthen Iran’s position at home and abroad at the expense of America’s.
Star Trek Actor Leonard Nimoy Dies at 83
Weight Watchers Shares Hit Record Low
Weight Watchers could be shedding market cap faster than its members are shedding pounds. (…) Its market capitalization is now below $1 billion from a 2011 high of $6.2 billion, having lost more than half of its value in the first two months of the year. (…)
A Nielsen survey of 2015 New Year’s resolutions by 580 Americans found that staying fit and healthy was American’s most frequent pledge, followed by shedding pounds. About two-thirds of respondents said they planned to exercise more this year, while around a third planned to focus on both portion control and calorie reduction.
Elsewhere in the same WSJ:
Stronger consumer demand, aided in part by falling gasoline prices, has fueled restaurant spending, which was up 11.3% over the past 12 months, more than in any other segment tracked by the government’s monthly retail and food-services report. For the first time on record, Americans are spending as much money dining out as at traditional grocery stores.
“After a few hard years, customers are treating themselves again,” said Jennifer Durham, vice president of franchise development at Checkers Drive-In Restaurants Inc. Higher sales led the burger chain to add 20 stores last year, hire hundreds of employees and raise its wages—with wage growth twice as fast in 2014 as it was in 2013.
My Own Life Oliver Sacks on Learning He Has Terminal Cancer
