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Tag: behavioral finance

Investor Confidence Is Fast Approaching ‘Invulnerable Extremes’ (Szn 5, Ep 19)

With Peter Atwater

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Peter Atwater joins the podcast to discuss the ideas from his latest book, “The Confidence Map: Charting a Path From Chaos to Clarity.” Crucially, he tells listeners why investor confidence is today fast approaching the ‘invulnerable extreme’ that indicates a top in markets…

Content Highlights

  • Investor preferences change dramatically with their confidence levels. Generally high confidence corresponds to preference for abstract items (NFTs, cryptos) whilst low confidence yields a preference for more practical things (2:48)
  • Yes, magazine covers can be a reliable contrarian indicator (5:52);
  • Investor confidence levels are rapidly approaching the ‘invulnerable extreme’ with AI hype and a bull market for luxury goods (10:08);
  • How to deal with the question of timing, and signs to look for when seeking to identify a top (15:17);
  • When it comes to cryptos, the most recent mania has passed and the prospects of another round is remote (18:16);
  • Background on the guest (24:10);
  • Investor mania is not defined so much by overconfidence but invulnerability (27:37);
  • Where does this leave investors in terms of asset allocation? Introducing ‘sentiment diversification’ (30:08);
  • Natural gas may be at an inflection point that presages a really (32:19).

More From Peter Atwater

Not investment advice.

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Investors Are Ignorant, Fade Their Conviction: Jason Shapiro (Szn 4, Ep. 30)

Jason Shapiro joins the podcast to discuss his trading strategy, based on the simple premise that most investors are wrong most of the time. This approach requires trades to be crowded, which is decidedly (and surprisingly) not the case right now — with two possible exceptions.

Content Highlights

  • Most traders lose money. Shapiro seeks to capture these losses by going against the crowd (3:11);
  • He does this by monitoring the Commitment of Traders report for extreme positioning, which he then fades (4:03);
  • The thinking behind this? The crowd is wrong. “It’s really that simple.” The discounting method is not price but positioning (6:11);
  • Shapiro monitors 37 different futures markets. Two examples of where this approach worked in the past (7:03);
  • Right now “I’m seeing some pretty scary stuff, because you don’t have anybody crowded” in major asset classes (8:24);
  • One possible exception: lumber (11:08);
  • Background on the guest (16:35);
  • Patience is a virtue, especially for contrarians (27:28);
  • “I have contrarian views on everything…that’s how I develop my opinion.” People are wrong because they want others to guide them (31:00);
  • The set-up in cryptos is “massively dangerous” based on positioning in Bitcoin futures. This sets Bitcoin and cryptos up for a major drop… (36:36).

(On this last point, Shapiro shared the following chart)

Chart of crowded crypto positioning

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Season 3, Episode 19: When Investors Become Gamblers — And Why It’s Happening Now

With William L. Silber, Author of ‘The Power of Nothing to Lose: The Hail Mary Effect in Politics, War, and Business’

William L. Silber, author of the book ‘The Power of Nothing to Lose: The Hail Mary Effect in Politics, War, and Business,’ joins the podcast to discuss his thesis that individuals, including investors, can become reckless gamblers if they have nothing to lose.

Silber has a career dating back to 1966 in academia and Wall Street. His comments are pertinent in the present day of cryptocurrencies, the ‘retailization’ of options trading, NFTs, and meme stocks, among others. So is his recommendation (not investment advice) to reduce risk exposure.

Content Highlights

  • When people have downside protection and limitless losses, “they tend to become reckless and almost gamblers” (3:48)

  • Rogue traders and the skewed payoff that makes them go rogue (14:41);

  • What to make of the present day and investors’ collective risk appetite, especially regarding meme stocks? (17:32);
  • Background on the guest (24:55);

  • A valuable lesson learned at Odyssey Partners in the 1980s: what’s an exit strategy? (27:47);
  • Is this a time for investors to reduce risks and sell stocks? (30:26);

  • Precious metals and their place in a modern portfolio (36:52);
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