I am not sure where this is going to go. You might think I have a Structure to my Blogs and I guess I do to an extent. But I have been thinking this Blog over for several days and I sat in the Kitchen with a blank sheet of A4 a few minutes ago and I just scribbled down, in no particular order, the points I wanted to cover.
Anyway, that is just my Opinion……..or is it oSPINion?
The Key Point
I am now going to throw you even more. I am putting a Paragraph from the ‘Conclusion’ of this Blog right up front here - so it appears twice. This is because I think it is utterly critical and I want to make sure this really sinks in:
“The Key thing to remember is that EVERYTHING you read has Bias and is Opinion, but, at the End of the Day, it is ONLY YOUR OPINION THAT MATTERS. So don’t just accept the Opinions and Biases of others - apply your own thinking and come to your own decisions.”
Source: Wheelie, today, end of this text.
So, what’s the Problem?
Getting back to Stocks and Bias, the main thrust of my scribbling is to warn you that ALL writing, in whatever form, has Bias.
I may be stretching a point, but perhaps I would be justified in saying that writing connected to the subject of Stocks and Investing has more Bias than almost any other subject on the planet (ok, maybe Politics can trump this).
I suppose the nub of the issue is the difference between ‘Facts’ and ‘Opinion’ - it is vital for a Successful Investor to be able to differentiate between them - and even the Best Investors will misjudge this sometimes. In theory, Facts are Facts. They are objective, they are precise, they are verifiable, they are available, THEY ARE TRUE. In reality, I suspect we are rarely provided with information that satisfies these simple criteria (there are probably more criteria but I just bashed that list out in a 20 second brainstorm - no effort from WD as usual !!).
In the Real World (and don’t forget, that is where most of us are, although looking at some Bulletin Boards does make me wonder sometimes - and I am writing this on Black Friday, which is like an alternative riot where people go mental but pay instead of looting. Probably many of the same people who rioted a couple of years back), Facts are taken by Human Beings and transformed into Opinion. For a huge chunk of the time, this is a Deliberate distortion; other stuff is distorted unintentionally - in fact, it is Subconscious.
ALL INFORMATION HAS BIAS.
It may surprise you to read me saying this, but every piece of WheelieDealer text you read is biased. Yep, the whole shebang. All of it. Nothing but a load of distorted tripe. Not worth reading.
My Tweets, my Blogs, all the text on my Websites, everything, it is all distorted, biased, information.
WOAH !! Don’t turn off your Fone/Tablet/PC yet - I haven’t got to the point. Yes, Yes, I know I just told you it is all sh*te, but please hang on and read the next bit.
The Case for the Defence - Subconscious Bias
I know fully that WheelieDealer is utterly biased - BUT I DON’T MEAN IT TO BE. This is the point - even when the Author is being 100% Honest and trying to be Objective - they are not. It cannot be helped - it is a Subconscious Bias that seeps into everything. I try to never be deliberately biased and I see my own Personal Integrity as critical in everything I do - but nonetheless my Subconscious biases are plastered everywhere. With luck, as time goes on and you get used to my Output, you will be able to understand my Biases and you will make allowances for them - and in truth, you will apply your own Subconscious Bias to what I write !!
Confused? I am I tell you.
This is far worse - although it is probably easier to spot and the Source of a particular piece of Information can give you a good idea as to what kind of Bias it may contain - and to be on the lookout.
Let’s cover some examples:
- Tipsters - Magazines like Investors Chronicle, Shares Magazine etc. and Newspapers along with Online Tipping Websites like Red Hot Penny Shares or t1ps.com, all have to sell their Magazine/Paper/Website Subscriptions - so they make their Tips sound exciting and enticing - this makes inexperienced and unaware Investors buy the stocks, only to be disappointed when the dreamed of bounce is slow in coming. I am not saying any Bias is deliberate in a necessarily ‘Bad’ sense, but they write and edit in such a way as to appeal to readers - it is not criminal or anything like that - they tend to stress the Positives of their Buy Case and gloss over the Negatives.
- Company Trading Statements - the Bias here is very similar to the ‘Tipster’ Bias in the above Bullet Point and ’Spin’ is truly rife. It is not necessarily malicious in most cases (in some it might be, e.g. QPP and some of their highly dubious RNS statements). Obviously the motivation here is to make the Company sound great and that Trading is going well - even if the opposite is true. Directors have large Shareholdings usually and Bad News will hit them personally in the pocket if their Share Price falls. They often have Share Options and Incentive Plans that are linked to the Share Price - and their Jobs can be on the line if the Shares fall in value too far and Institutional Investors start demanding their removal. Sometimes Banking Covenants on Loans are tied to the Share Price and they can be in Breach if the Price falls too far. The usual form of the Bias here is to again accentuate the Positives and hide the Negatives - and Accounting Trickery is often used to make things appear a lot better than they actually are. For more details on this Accounting Tomfoolery, make sure you read Paul Scott’s Blog on Stockopedia every day - you will realise this problem is rife.
- News Headlines - I am thinking specifically here of stuff I read every day on MoneyAM and you can find it elsewhere also. First thing every morning (I say ‘First thing’ but WD is a lazy bug*er and this can mean 9am or so) I turn on my 7” Tablet and read the News on www.moneyam.com. You can get the same sort of News Stream on many other websites - but I just like the clarity of the MoneyAM one. The problem is that Company Statements (i.e. the Raw Source) come out around 7am and then you get a million ‘Headline’ type summaries from god knows who - but they are almost useless and are repeated endlessly. The problem is that they try to explain a set of results in just a few words - and obviously stuff gets missed out. The worst examples are when they say “strong profit growth at XYZ” but when you actually read XYZ’s Raw Statement, you find it is profit growth compared to last year but actually misses Market Expectations by a mile !! Just be aware of this and it is probably best to avoid these sorts of pointless summaries - go straight to the Horse’s gob.
- Analyst /Broker Recommendations - These things are lethal - just stuffed to the Gunwhales with Bias. The Bias arises in several ways - Firstly, the Recommendation may come from the ‘House Broker’ - these guys are paid Promoters of the Company and obviously they are not going to say “this Company is a Hound” because they get paid by them. So, even if they think they are a total Duffer, they will be very soft in their comments - an obvious one is when they Downgrade from a ‘Buy’ Rating to a ‘Hold’ Rating - they really want to say “Sell this stock cos it is a total Woofer” but they cannot do that because of the Conflict of Interest. There was a similar example that I saw this morning where some US Analyst Outfits had been fined because they had given a Company a positive recommendation because they were trying to win their account for representing as the Corporate Broker. Another motivation arises because of the links between Analyst Arms of Institutions and their Trading Arms. In simple terms, an example of the way it works is that Traders have a huge chunk of Shares in Company X they wish to Sell - so they get the Analysts to say how brilliant Company X is and slam a Buy rating on it. The Traders can then go to their unfortunate customers and dump the Stock on them with the Analyst Recommendation to Buy as a major reason why they must be bought. The Government has been trying to reduce this by constructing ‘Chinese Walls’ but it is doubtful that they work. Part of the problem is that Analysts tend to be in Junior Roles - they start work as Analysts straight out of College (so have no experience and are malleable by others more Senior) and they are desperate to move up and become Traders, Fund Managers, Brokers etc. For more detail on this, nip over to Wheelie’s Bookshop and get yourself a copy of ‘Liar’s Poker’ - it is an entertaining read and will open your eyes to what is really going on.
- Bulletin Board comments - Most, if not all, Posters on Bulletin Boards have considerable Bias - usually they have a Position (either Long or Short) on the Stock in question and they are “talking their own book”. In general, BB Posters are Long of the stock, even when it is a total turkey they will be still puffing it up. Some is deliberate, and some is just motivated by a psychological inability to accept they are wrong - be careful when reading anything on a BB. I tend to use BBs only if one of my Stocks moves a lot and I cannot find an obvious reason - sometimes the BB can enlighten me. Great way to find new swear words for your Slang Dictionary though….
- CNBC and Bloomberg TV - the Bias here is unbelievable - and most people will probably be surprised by my comments which are about to follow. Let’s consider what happens on these Channels when the market has one of its horrible Fast Downward lurches - er, like today and this week !! The timeline is as follows: The Market starts coming off from a Peak; CNBC/Bloom wheel in the Bears; Market Tanks; CNBC/Bloom get in the Uber Bears who say it is Armageddon; Market Really Tanks now; Utter fear and panic set in; Final Bulls Capitulate and sell (Throw in the Towel); Market then Rallies very fast; CNBC/Bloom wheel in the Bulls who say things are brilliant…….Spot a Pattern? Most people do not see this, but with regard to Mass Media, News Follows the Market not the other way around. Think about it - you will be surprised. Intraday and maybe for very short periods of a couple of days, some Surprise News can impact the Market, but mostly the News is already known to the Market and what is driving Stock Prices is the usual Waves of buying and selling - it is normal for Prices to meander in this way. Of course, it would be tedious TV if CNBC announced “The Market is down today, some Sellers were prepared to let their Stocks go at lower prices than yesterday and the Buyers were not prepared to pay quite as much”……but that is what has really occurred. The Bias in CNBC/Bloom is to ensure a captivating Programming Schedule and to attract Viewers and therefore Advertisers - it is important to understand this. My method of avoiding this risk is just not to watch them or pay much attention - I bet many people are watching in total fear today hoping for help with regard to what they should do. Unfortunately they do not realise that watching this stuff is feeding their Fear. The problem is not an issue with the ‘Talking Heads’ who get wheeled on - most of them are sensible and probably 80% correct in what they say - however, the issue is around Context - the Channels bring in people to fit the narrative. It makes sense when you think about it, for every Buy there is a Sell in the Markets (most people do not understand this - it is fact. Even today when “everyone was selling”, it is not true. Just as many people were buying - they just wanted lower prices) - so the Channels can always find someone to support their Buy argument or to fit the Sell argument. This is really evident when they wheel someone in who you have never seen before - they have been scraping around to find a person who fit’s the narrative.
This is not an exhaustive list, but it should have fired up your brain to start considering what Bias is around you and in the Information you read. There is also considerable Subconscious Bias with all of the above examples - this Subconscious Bias can sometimes arise from Psychological ‘Anchoring’ where writers get so entrenched in their own position, that they fail to see flaws and cling on to mistaken beliefs - especially the case on Bulletin Boards.
What can we do about it?
Well, I am sorry to say it, but it is probably very hard to counter these Biases - but at least if you can realise they exist then you have a chance of reducing their impact - but you will get caught out, especially by the more subtle, subconscious, Bias.
Here are some approaches that may help:
- Think objectively and question everything. Is the Source reliable? What is their motivation? Who is paying for this information? (often it is you but you do not realise !!), Why are they telling me this?
- Always go to the lowest Level of the Information you can obtain - for instance, do not read a Headline on a Company’s Results - go directly to the RNS Statement from the Company itself - any Newspaper Report or Website commentary on the Results will contain its own Biases - Deliberate or otherwise. But remember that even the Rawest Source can still have Bias within it.
- Build up over time a list of Websites, Twitter People, Magazines etc. you are happy with and can mostly trust - understand their Biases and try to accommodate them. My ‘Useful Links’ Page on www.wheeliedealer2.weebly.com may help you here. If you find a ‘Secondary’ Source like this to be substandard, then stop bothering with their output - it is dangerous to follow Biased advice and it wastes time which we cannot spare (see my Blog “Information Overload”). Don’t waste time reading everything under the sun on one of your stocks - it won’t help, it will just muddy the waters and confuse you. Find people who tend to be mostly right and listen to what they have to say.
- If this Blog has wetted your appetite, then maybe you could do some Google Searches etc. for more Information about Biases and how they arise. There are probably books on the subject (other than Liar’s Poker, I cannot think of any at the moment, although there are loads on psychology with regard to Finance).
- For a particular Stock, don’t just blindly listen to Tipsters, or Bulletin Board Gurus or whoever, think of the Stock in the context of your own Portfolio - stick to your Rules. For instance, a Housebuilder may seem a superb Investment, but if you have 3 others already, then what is the point?
- See and actively seek out both arguments for a Stock - Bull and Bear. This is similar to my Recent Blog about thinking Holistically about a Stock (see “Are you in your Helicopter or down in the Weeds?”). Instead of joining the crowds of fools criticising Shorters, seek out their arguments and give them proper consideration. Stop berating them and sending Poo to their Pizza Restaurant - THEY ARE DOING YOU A FAVOUR - in 2 ways. Firstly, they could be alerting you to how terrible a Stock you hold actually is (QPP) and Secondly, if they are wrong, then they will drive down the Price so you can buy more cheaply (PLUS). They are the good guys, stop beating up on them. The FCA sure as hell are not going to help you !!
- Beware of getting involved in ‘Group Think’ - it can be like a collective Opinion. Some of it is like a comfort blanket, it is the kind of behaviour clearly on display among Bulls on the QPP Bulletin Boards - nobody is thinking and they are all clubbing together to soothe their wounded Pride, Egos and Bank Balances. If you find yourself doing this sort of thing, then STOP and question your motivation / psychology. Any BB with lots of Comments on it and with very short frequencies, is probably warning you of a stock to avoid.
- Turn the TV off and ignore Mass Media on Finance and Macro Economics - it is nearly all bollox in my view.
I think this whole area of Opinion and Bias is hugely misunderstood and under-appreciated. It is especially a problem for New Investors - I guess many Old Hands have learnt from experience how to avoid such Biases, and it is quite possible that they have never even considered it as a separate Subject - at least my Blog may highlight the issue.
The Key thing to remember is that EVERYTHING you read has Bias and is Opinion, but, at the End of the Day, it is ONLY YOUR OPINION THAT MATTERS. So don’t just accept the Opinions and Biases of others - apply your own thinking and come to your own decisions.
Other people’s opinions do not make you money - in fact, they probably lose you money. Only Your Opinion makes you money - be doggedly self centred in this regard - but generous in most other aspects of your life. Be nice to people, think of it as karma, feed the ‘Trading Gods’ and they will look after you.
I truly believe that you will not make money if you have a black heart.
The other day I was looking at a Twitter Feed from someone and it was full of spite, hate, bitterness and vitriol - what really amazed me was that they had 400 Followers - why on earth do people follow such childish and nasty behaviour? I really believe that stupid people like this will not make money - after all, if they were successful, surely they would be happy?
As the Red Hot Chilli Peppers sang, “give it away, give it away, give it away, give it away now…”
Finally, remember you too have Biases - but these are really the subject of a lot more Blogs on Psychology to come I guess…….