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Irrational and Odd Behaviors of Traders

  
  Education
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Anchoring: our habit of focusing on one salient point and ignoring all others, such as the price at which we buy a stock.

Bias Blind Spot: we agree that everyone else is biased, but not ourselves.

Confirmation Bias: we interpret evidence to support our prior beliefs and, if all else fails, we ignore evidence that contradicts it.

Disposition Effect: we prefer to sell shares whose value has increased and keep those whose value’s dropped.

Framing: the way a question or situation is framed can determine your response.

Fundamental Attribution Error: we attribute success to our own skill and failure to everyone else’s lack of it.

Herding: we tend to flock together, especially under conditions of uncertainty.

Illusion of Control: we do things that make us feel in control, even if we’re not.

Loss Aversion: we do stupid things to avoid realizing a loss.

Overconfidence: we’re way too confident in our abilities, which seems to be an in-built bias that we’re unable to overcome without excessive effort.

BUFFETT'S ANNUAL LETTER IS OUT: Here Are The Key Points!

  
Analysis, Education
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Here’s the link to this year’s letter.  Feel free to point out anything you might like to discuss or anything you think might be worthy of a post.

Here are the key points:

  • For just the 9th time, Berkshire’s book value rose less than the S&P 500. Buffett calls the year subpar.
  • Berkshire pursued a couple of “elephants” but mostly came up empty, until the recent big Heinz deal.
  • Buffett explains his five guidelines for increasing shareholder value: “In summary, Charlie and I hope to build per-share intrinsic value by (1) improving the earning power of our many subsidiaries; (2) further increasing their earnings through bolt-on acquisitions; (3) participating in the growth of our investees; (4) repurchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares.”
  • Berkshire’s five biggest non-insurance companies (BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy) broke the goal of having over $10 billion in income this year.
  • Berkshire’s new portfolio managers Todd Combs and Ted Weschler both had portfolios that beat the S&P 500 in 2012.
  • Both Combs and Weschler now have portfolios of $5 billion to invest.
  • Buffett expects Berkshire to buy more Coca-Cola, American Express, Wells Fargo and IBM in the future.
  • CEOs who whine about “uncertainty” are silly (see more here)
  • Contrary to Buffett’s expectations, the “float” from Berkshire’s insurance businesses continues to grow. He doesn’t expect it to continue, but it grew another $2.5 billion last year. (more…)
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