A little bit of psychology to begin our day. The recency bias is our psychological tendency to give more weight to recent data or experience, than to earlier data or experience.For example, suppose it's the end of the year and your boss is assessing your work performance. His impression of your work performance will probably be much more heavily influenced by what you did in the 2nd half of the year, than what you did in the 1st half of the year. This is despite the fact that what you did in both halves should matter equally.
Recency bias also affects the way people invest money. Suppose for example the stock markets have been in a bull run for the past two years. The masses will tend to forget other, less-recent years when bull runs turned abruptly into market crashes (eg the NASDAQ crash of 2000). Since all the recent data and experience indicates a charging bull, the masses will tend to develop the expectation that the bull will keep on charging on.
You might know this saying - "Those who never remember the past are doomed to repeat its mistakes." It's a neat encapsulation of the recency bias.
In the past two years, the Gods of Money have been very kind to Mr Wang. Thank you, sirs. Today, Mr Wang will start getting out of the markets. He senses mania.
ST May 15, 2007
STI hits high after China eases investment rules
Regional markets also shoot up in anticipation of massive outflow of new money
By Markets Correspondent, Goh Eng Yeow
SINGAPORE'S stock market hit a record yesterday after a landmark decision by China's banking regulators sparked a Manic Monday rally across the region.
Investors piled in to local shares to drive the Straits Times Index up 54.18 points to close at 3,501.1 - a rise this year of 17.3 per cent that has added $77 billion to the market's value.
The bulls were primed to run wild yesterday by a historic decision announced in Beijing last Friday: China's bank customers will be allowed to buy shares in overseas markets - mostly via funds - for the first time.
Such purchases will initially be confined to the Hong Kong market, but bourses from Mumbai to Sydney shot up in jubilant expectation of what could be a massive outflow of new money.
'We are witnessing history in the making - a move that may eventually open the floodgates for some US$2 trillion (S$3 trillion) of Chinese domestic savings (looking) for better opportunities,' said Mr Loh Hoon Sun, Phillip Securities' managing director.
Mr Loh forgot to mention that for starters, the Chinese government is going to allow China's bank customers to invest only US$7 billion overseas, over 12 months.
In terms of global stock markets, US$7 billion over 12 months is quite small peanuts. You can see from the ST article that the Singapore stock exchange itself grew by 11 times more (USD 77 billion) in market capitalisation, in the 1st five months of 2007 alone. And the Singapore stock exchange is quite small, relative to many other stock markets around the world.
In terms of global stock markets, US$7 billion over 12 months is quite small peanuts. You can see from the ST article that the Singapore stock exchange itself grew by 11 times more (USD 77 billion) in market capitalisation, in the 1st five months of 2007 alone. And the Singapore stock exchange is quite small, relative to many other stock markets around the world.