Value Investing: Tools and Techniques for Intelligent Investment

Chapter 18. The Bullish Bias and the Need for Scepticism. Or, Am I Clinically Depressed?^[18]

Human beings are an optimistic bunch. Some 74% of fund managers think they are above average at their jobs, 70% of analysts think they are better than their peers at forecasting earnings, and a mere 9% of recommendations are sells! In part, this bullish bias stems from a natural tendency to look on the bright side of life. In part, it stems from self-serving bias and motivated reasoning. Perhaps the best way of resisting this siren call of bullishness is to focus on being an empirical sceptic – check your beliefs against reality on a regular basis.

• At the end of Monty Python's, The Life of Brian, those hanging on crucifixes begin singing 'always look on the bright side of life'. It would appear that the vast majority of people subscribe to this particular view of the world. Everyone seems to think that good things are much more likely to happen to them than bad things.

• What are the sources of this bullish bias? In Part they stem from nature. That is to say, people may well have been hard wired by evolution to be optimistic. After all, a stone-age pessimist probably won't have bothered getting up to hunt mastodon. When faced with bad news over illness, say, those of an optimistic nature deal with the news much better than those with a pessimistic disposition. In fact, the parts of the brain that seem to generate the bullish bias are associated with the evolutionary older X-system (the more ...