The Psychology behind the ‘No Maximum Size’ approach
Right, now we are finally onto the nitty gritty of the Blog Series - sorry it has taken so long but I felt a strong need to set the scene in Part 1 and make sure Readers had a decent understanding of what the Techniques practically meant before we plough on with the Psychology and Thought Processes lying behind them. If you have not read Part 1 yet, I suggest you read that first as this one may not make a whole load of sense otherwise. You can find it here:
It is hard for me to know 100% for certain, but I suspect the following Psychological Biases are fairly accurate regarding Practitioner’s motivations for using the ’No Maximum Size’ approach - this is because I do not use such an Approach myself so I am simply attributing likely Biases that might drive this behaviour (the word ‘Bias’ must not be taken here as necessarily a negative thing - I mean it more as an innate and probably mostly subconscious part of our Thought Processes. In terms of Daniel Kahneman, it is your ‘Fast Brain’ making snap judgements and introducing certain predispositions with regard to how you assess the individual Approaches, driven perhaps more by Emotions than by truly careful Rational thinking by your ‘Slow Brain‘. Something to appreciate here is that recognising your own Psychological Biases is an essential Starting Point - and one way of overcoming them is simply by repeated practicing which really means Time and Experience - it is for such reasons, that Experience is so valuable in Trading / Investing):
Whilst doing the final edit of this Blog, I have realised there is another element called the ‘Availability Heuristic’ - this is where we tend to overweight and attach more importance to Information that is easily to hand - in this example the sheer fact that the Guru is everywhere will tend to make us focus on what they are saying - whether or not they are right, and irrespective of how what they are saying fits in with our own Portfolios and different Approaches (whether or not these differences are subtle or profound, they can still be sufficiently unlike what the Guru does so as to make his/her ’advice’ irrelevant and perhaps even dangerous for us in our context). You can read more on the Availability Heuristic here:
That’s it for Part 2 - this is pretty heavy stuff so feel free to read it again (don’t worry, I am monitoring what you read via Google Analytics and I won’t let on that you had to read it 12 times….). In Part 3 I will apply some Psychology thoughts towards the TopChop Approach - although that will be a lot shorter because of my own innate Bias towards TopChopping !!
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