Author Archives: Patrick Crook

Why Do People Crave Predictions?

Investors looking to improve their decision making skills would do well to replace one (or all) of their financial news sources with Brian Burke’s In a recent post, he writes:

“I once wrote to our own Carson Cistulli in an email that “People love lists and they love predictions. What I give them is lists of predictions.” Frankly, it wouldn’t matter how accurate the predictions are. People just crave them. The future creates anxiety, and whether accurate or not, predictions, help relieve it. At least, that’s what my astrologer tells me.”

He’s right. People crave predictions regardless of whether or not they provide any actual benefit. Burke has a simple, quantitatively driven model for predicting the outcome of football games that just happens to actually provide a benefit. Continue reading

The Big Win

One of my favorite finance guys is Ramit Sethi, writer of the “I Will Teach You To Be Rich” blog (and book by the same name). We disagree sharply on investment strategy, but I love his overall philosophy of focusing on the “Big Win.”

For example, instead of spending time writing yet another austere budget that will undoubtedly be abandoned in a few weeks, spend that limited time and willpower on Continue reading

The Correlation Problem

What are the odds of flipping a fair coin and getting tails four times in a row? There are 16 possible outcomes for four coin flips:

H H H H   H H H T   H H T T   H T T T
T T T T   T T T H   T T H H   T H H H
T H T H   H T H T   T H H T   H T T H
T H T T   T T H T   H T H H   H H T H

The odds of flipping four tails in a row are 1 out of 16, a 6.25% (or .5^4) probability. Unlikely, but not that unlikely. In a hundred coin flips, the odds say that you’ll probably see it happen six times.

Now let’s say that you have an investment approach that you feel confident will produce Continue reading

In Which I Gently Correct Mark Cuban’s Rant on Investing

even_mark_cuban_can_be_wrongMark Cuban, billionaire owner of the Dallas Mavericks, is pretty easy to like. He’s a smart, passionate, high energy guy and writes a really interesting blog. However, even smart billionaires are wrong from time to time.

In a post from earlier this year titled, “Wall Street’s new lie to Main Street – Asset Allocation,” Cuban gets a lot right, but misses a larger point. He starts strong:

The greatest lie ever told used to be Wall Street telling main street to “buy and hold”.  Of course that’s what they told you every chance they got. It’s not what they did.  The holding period for stocks dropped from 8 years in 1960s to 2 years in the 1990s and 8 months in the 2000s.   Today, stocks are bought and sold in milliseconds.  Which is one of the big reasons you don’t hear much about buy and hold any more. That and the fact it didn’t work.  I think individual owners of stocks  finally came to understand that old saying “Fool me once, shame on you. Fool me for 50 years, shame on me. “

This is true for the most part and something that I have made a note of in the past. Where he is off here is in his assertion that you don’t hear much about buy and hold any more. Shockingly, the old buy & hold zombie march is not only still going strong, but remains the standard Continue reading