In the past seven years, there has been only one instance of “yen appreciation at year-end.”
Hello, this is Koyama.
In the world of the markets, there are "trends".
For example, speaking of famous trends,
the term "Sell in May" is
It is a market tendency that suggests May is more likely for stock prices to fall,
and as such this can vary by season,
there are “trends” in how the market tends to move.
Moreover, such topics easily catch the eye of traders,
and are often covered by the media as well.
Recently, on the Reuters site, I also saw articles like the following.
“From October to December, as a rule, the yen tends to weaken.
From 2012 to 2018, when the second Abe administration started,
the dollar/yen, except for last year, in six of seven instances
at the end of December exceeded the rate at the start of October. This year, as of now, it also
exceeds the early October level of
108.09 yen.”(Reuters:
https://jp.reuters.com/article/tokyo-frx-wklyoutlook-idJPKBN1XW0IJ
Quoted)
“Out of 7 instances, 6 times” indicates a considerable probability, doesn’t it?
In the past 7 years, the probability of the dollar/yen pair ending the year with yen weakness is about
85%.
If you hear this,
you might naturally think, “This year’s year-end is likely to end with a yen-weak trend.”
That would be a natural assumption.
You might also think,
“If the yen is going to weaken, I should build a dollar-yen long position
while there’s time.”
But be careful.
If you know such trends and get trapped in an assumption
and trade accordingly, you will inevitably fail in the markets.
“What if the trend misses and we encounter a rise in the yen?”
Traders who have not considered this
will certainly be defeated by the market.
Therefore, from now on
you will likely encounter various “market trends,” but
instead of accepting them as gospel,
it is wise not to take them too literally.
Indeed,
it is not easy to dismiss it entirely,
so it is better from the start to minimize information as much as possible.
Many people think
“gathering as much information as possible leads to profit,”
but
this tends to lead to biased trading, so
you should avoid obtaining more information than necessary.
You may be anxious about not having information, but
do not underestimate the influence of cognitive biases.
Although not related to investing,
here is one interesting story about “human cognitive biases.”
It concerns the topic of alcohol.
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A story about cognitive bias related to drinking
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The year-end party season is approaching, and many people will
drink more than usual. It’s also a season where
“drinking mishaps” increase.
To avoid ending 2020 in a terrible mood,
please be mindful of “drinking mishaps.”
In particular, drinking and trading is a no-no.
Even more so, control of desire and fear is difficult in this world,
and you cannot expect to keep self-control while drinking.
That is beside the point, but I will share a story about
cognitive biases related to drinking.
You, how powerful do you think human cognitive biases are?
Most people think
“Just thinking bias won’t change much.”
But in fact, biases can cause your body to change in powerful ways.
For example,
simply thinking, “I am drinking alcohol,”
causes people who are drinking non-alcoholic beverages to become
drunk as if they had consumed alcohol.
People can get drunk even if they drink not a drop of alcohol.
In fact,
there is an experiment where
participants were given a drink that looked and smelled like alcohol but contained zero alcohol,
a non-alcoholic drink.
First, students were gathered and split into two groups.
One group received red badges and actual alcoholic drinks.
The other group received blue badges and non-alcoholic drinks that resembled alcohol.
Now, what happened to the students with the blue badges?
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Despite consuming not a single drop of alcohol,
the students with the blue badges exhibited the same symptoms as someone who had overdrank.
Were they merely pretending to be drunk?
The answer is no.
They believed they were drinking,
and that belief influenced their brain and body to think and act as if they were drunk.
At the end of the session, when we revealed the setup,
the blue-group students laughed and quickly sobered up as they left the bar.
Richard Wiseman
“The Science of Self-Help (Bungeisha/Books Publishing)”
2012, First Edition
P.202
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Incredible,
the belief that “I am drinking” made the body feel drunk.
The power of belief is formidable.
Speaking of which,
some people say, “Even if you’re not drinking, you get tipsy just by being at the drinking party.”
This is also due to
the brain being deceived by others drinking,
and thus your body changes as a result.
“Placebo effect”
and so on, where fake medicine has no real effect,
but if you believe you are taking real medicine,
your illness may improve.
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Block information that could lead to biases
as much as possible.
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From what we’ve discussed today, the influence of biases
is incredibly powerful, and you may have understood that in this way,
In the world of investing, there is no other place where so many people suffer great losses due to biases.
“It will rise.”
“It will fall.”
These biases deprive you of funds,
and so many suffer.
Once a bias is formed,
it does not disappear easily.
As shown above,
bias can alter your body state with powerful influence.
Therefore, when trading,
you should block information that could lead to biases as much as possible,
and I reiterate this point.
At a traffic-free intersection,
you might think, “Vehicles may come from both right and left.”
If you drive without caution, no one would do that, but
likewise, eliminate biases,
and always, while assuming rising and falling markets,
be prepared to respond to market movements.
Thank you for watching until the end today as well.
Thank you very much.
Keizou Shimoyama
