Eliminating emotional bias

Selling pressure from the September quarter-end is now abating. Although we may see further tests of support, this is likely to be followed by a surge in buying from long-term investors. At which point you can congratulate yourself for sticking to your position and not succumbing to temptation to cut losses and run.

The daily media cycle fuels indecision. There are always interests best served by opposing views of the market. Those not in the market would love to see it fall. And those in the market, or who derive an income from market activity, want it to rise. Most will seize on any evidence that supports their view and promote it for all they are worth. Any attempt at objectivity is lost. Treat with suspicion any source that does not present both sides of an argument before delivering a conclusion.

We try to counter any inherent bias using two measures. The first is to employ a disparate set of macroeconomic and volatility filters to identify elevated market risk. Using set rules enforces discipline and reduces emotional bias. But that on its own is insufficient. The second step is to continually examine evidence that conflicts with your conclusion in order to assess whether your model of the economy warrants revision.

Our market indicators continue to indicate low risk, despite the current correction, and we maintain our bullish view on stocks.