oil-1441845-639x852

Is Oil Black Gold Or Fool’s Gold? We Think It’s The Latter, Here’s Why

 

The following excerpt and image below are from Carl Richards in a New York Times Blog post:

The recency bias is pretty simple. Because it’s easier, we’re inclined to use our recent experience as the baseline for what will happen in the future. In many situations, this bias works just fine, but when it comes to investing and money it can cause problems.

When we’re watching a bull market run along, it’s understandable that people forget about the cycles where it didn’t. As far as recent memory tells us, the market should keep going up, so we keep buying, and then it doesn’t. And unless we’ve prepared for that moment, we’re shocked and wondered how we missed the bubble.

We wanted to start this article on oil with a brief mention of recency bias for the following reason: This cognitive bias has blinded many investors from properly understanding the true fundamental supply and demand dynamics at work in crude. It is human tendency to overweight the importance of recent data relative to past information. Most of the time this is the right thing to do. But occasionally in investing, there are large paradigm shifts that vastly differ from recent experiences. In these instances, the investor would benefit from a more detailed study of historical data in order to better grasp possibilities. There is large alpha in these secular market shifts for those who stay on top of them. (Keep reading….)

 

All content on our website, emails, social media posts, comments on other websites or other material generated by Macro Ops is intended for general information purposes only. None of our content should be considered to be an invitation to buy or sell securities. No content from Macro Ops should be considered individual investment advice. Macro Ops cannot guarantee accuracy of information on the site. Contributors to Macro Ops may have trading or investing positions in the securities mentioned. You should assume that we are likely to take trading positions in the stocks, options, futures or other securities we write about. Macro Ops does not have an obligation to inform readers of a change of opinion on securities mentioned or on a change in our trading positions on securities mentioned. Macro Ops assumes no liability for losses incurred from readers trading securities that are mentioned in any of our content. Copyright © 2016 Foundation Alpha LLC. All rights reserved. - powered by Enfold WordPress Theme