“Unfortunately, skill in evaluating the business prospects of a firm is not sufficient for successful stock trading, where the key question is whether the information about the firm is already incorporated in the price of its stock. Traders apparently lack the skill to answer this crucial question, but they appear to be
ignorant of their ignorance.” — Daniel Kahneman
“If you think you’re an expert on picking stocks, then you should be fabulously rich. If you’re not, you’re
probably not.” — Daniel Kahneman
I wanted to start this newsletter with a rare double-quote from Daniel Kahneman who passed away on March 27 th . Kahneman was a Nobel laureate for his founding work in the field of behavioral economics. He was considered to be the leading authority on “human error” with respect to decision-making in financial markets.
We very much share alignment with Kahneman’s research which clearly illustrates that even those armed with the skills and resources to evaluate companies effectively on an economic/business level are unable to consistently make profitable decisions in stock selection or timing, despite these advantages.
I would encourage anyone who has the humility to be willing to confront their own biases and motivations to read his best-selling book from 2011, Thinking, Fast and Slow. I have found his writing incredibly insightful for better understanding my own shortcomings with respect to decision-making and perspective.
Ultimately, Kahneman’s research paved the way for the modern financial advisor’s role in helping their clients avoid mistakes as much as our responsibilities in financial planning, taxes, or investment management. May he rest in peace.
Markets & Economics
The year began on a strong note for global stocks, with an impressive return of 8% during the first quarter1 . Despite some lingering uncertainties, such as the anticipation of prolonged higher interest rates and the upcoming US elections, these factors were outweighed by the overall positive market sentiment.
Notably, Japan’s Nikkei index made headlines by reaching new record highs for the first time since 19892 . Major US indices, including the Russell 3000 and S & P 500 Index, notched a slew of all-time highs, as well. Of course, these gains occurred under the familiar backdrop of war, strife, and unrest that we are inundated with at all hours of the day.
Do you remember this graph that we shared in our commentary last quarter?
This graph illustrated how market estimations of where interest rates would be after the June 2024 Federal Reserve meeting changed from October 1 to December 31. What this showed was that entering Q4 of 2023, pricing suggested that it was incredibly unlikely the Federal Funds interest rate would be below 5% by June of 2024. However, by the end of the year, the market believed it was an absolute certainty that interest rates would be below 5% by the June 2024 Fed meeting.
At the time, I used this to highlight that ‘no one knows anything’. We went from an extremely high confidence of rates being above 5% to an extremely high confidence (literally 0.00%) that rates would be below 5% over a three-month period for an event that was going to occur in the middle of 2024. Markets shifted from one certainty to the opposite because of unforeseeable changes in circumstances – unknown-unknowns.
Well, you’ll never believe what that graph looks like from January 1, 2024 to March 31, 2024:
Source: Data – CME FedWatch, 1/2/2024 – 3/31/2024
Absolute confidence for rates below 5% back to absolute confidence for rates above 5%, once again. This is one of those things where, if you saw a plot develop like this in a TV show or movie, you’d roll your eyes and think “Okay, that seems like a bit of a stretch for believability”, but here we are!
Daniel Kahneman knew. It’s very easy to be confident about how things work or how the future is going to look right up until something changes. But, the problem is everything is always changing. This is why we don’t time markets. This is why we don’t make allocation decisions based on forecasts. This is why we diversify.
The measured, long-term investment approach works because it doesn’t rely on being successful in this impossible short-term analysis.
Developments at Ferguson-Johnson Wealth Management
It is with mixed emotions that we announce the departure of Stacie Ricketts, who has been an integral part of our team for the past nine years. Stacie’s professionalism, dedication to the role, and warm, welcoming demeanor will be sorely missed. She has left an indelible mark on our company. While we are sad to see Stacie go, we are excited to see her embark on her next phase of life and wish her all the best in what is next to come.
In bidding farewell to Stacie, we also extend a warm welcome to Jen Whalen, who will be joining us to fill Stacie’s shoes. Jen brings with 15 years of experience as an office administrator for a local mortgage provider and we are confident that she will be a valuable addition to our team. Please join us in extending a warm welcome to Jen as she settles into her new role.
As we navigate through this transition, please know that we are committed to continuing to provide our clients with the level of service and support you have come to expect from us. We appreciate your continued trust and look forward to the opportunities ahead as we work with Jen to help achieve our clients’ goals.
As always, we welcome your comments, concerns, and questions about this or anything else related to your finances.
We wish you a wonderful and pleasant start to Spring and, despite all the allergies that come with it.
1 “Global Stocks” represented by MSCI ACWI index. Data from Morningstar as of March 31, 2024.
2 Reuters. “Nikkei at record high: Here's what analysts say”. Reuters. February 22, 2024.
Past performance is no guarantee of future results.
This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Investment advisory services offered through Ferguson-Johnson Wealth Management, a registered investment adviser.
Farewell to the Father of Behavioral Economics
By: Ferguson-Johnson Wealth Management | May 7, 2024
“Unfortunately, skill in evaluating the business prospects of a firm is not sufficient for successful stock trading, where the key question is whether the information about the firm is already incorporated in the price of its stock. Traders apparently lack the skill to answer this crucial question, but they appear to be
ignorant of their ignorance.” — Daniel Kahneman
“If you think you’re an expert on picking stocks, then you should be fabulously rich. If you’re not, you’re
probably not.” — Daniel Kahneman
I wanted to start this newsletter with a rare double-quote from Daniel Kahneman who passed away on March 27 th . Kahneman was a Nobel laureate for his founding work in the field of behavioral economics. He was considered to be the leading authority on “human error” with respect to decision-making in financial markets.
We very much share alignment with Kahneman’s research which clearly illustrates that even those armed with the skills and resources to evaluate companies effectively on an economic/business level are unable to consistently make profitable decisions in stock selection or timing, despite these advantages.
I would encourage anyone who has the humility to be willing to confront their own biases and motivations to read his best-selling book from 2011, Thinking, Fast and Slow. I have found his writing incredibly insightful for better understanding my own shortcomings with respect to decision-making and perspective.
Ultimately, Kahneman’s research paved the way for the modern financial advisor’s role in helping their clients avoid mistakes as much as our responsibilities in financial planning, taxes, or investment management. May he rest in peace.
Markets & Economics
The year began on a strong note for global stocks, with an impressive return of 8% during the first quarter1 . Despite some lingering uncertainties, such as the anticipation of prolonged higher interest rates and the upcoming US elections, these factors were outweighed by the overall positive market sentiment.
Notably, Japan’s Nikkei index made headlines by reaching new record highs for the first time since 19892 . Major US indices, including the Russell 3000 and S & P 500 Index, notched a slew of all-time highs, as well. Of course, these gains occurred under the familiar backdrop of war, strife, and unrest that we are inundated with at all hours of the day.
Do you remember this graph that we shared in our commentary last quarter?
Source: Chart – Avantis; Data – CME FedWatch, 10/1/2023 – 12/31/2023
This graph illustrated how market estimations of where interest rates would be after the June 2024 Federal Reserve meeting changed from October 1 to December 31. What this showed was that entering Q4 of 2023, pricing suggested that it was incredibly unlikely the Federal Funds interest rate would be below 5% by June of 2024. However, by the end of the year, the market believed it was an absolute certainty that interest rates would be below 5% by the June 2024 Fed meeting.
At the time, I used this to highlight that ‘no one knows anything’. We went from an extremely high confidence of rates being above 5% to an extremely high confidence (literally 0.00%) that rates would be below 5% over a three-month period for an event that was going to occur in the middle of 2024. Markets shifted from one certainty to the opposite because of unforeseeable changes in circumstances – unknown-unknowns.
Well, you’ll never believe what that graph looks like from January 1, 2024 to March 31, 2024:
Source: Data – CME FedWatch, 1/2/2024 – 3/31/2024
Absolute confidence for rates below 5% back to absolute confidence for rates above 5%, once again. This is one of those things where, if you saw a plot develop like this in a TV show or movie, you’d roll your eyes and think “Okay, that seems like a bit of a stretch for believability”, but here we are!
Daniel Kahneman knew. It’s very easy to be confident about how things work or how the future is going to look right up until something changes. But, the problem is everything is always changing. This is why we don’t time markets. This is why we don’t make allocation decisions based on forecasts. This is why we diversify.
The measured, long-term investment approach works because it doesn’t rely on being successful in this impossible short-term analysis.
Developments at Ferguson-Johnson Wealth Management
It is with mixed emotions that we announce the departure of Stacie Ricketts, who has been an integral part of our team for the past nine years. Stacie’s professionalism, dedication to the role, and warm, welcoming demeanor will be sorely missed. She has left an indelible mark on our company. While we are sad to see Stacie go, we are excited to see her embark on her next phase of life and wish her all the best in what is next to come.
In bidding farewell to Stacie, we also extend a warm welcome to Jen Whalen, who will be joining us to fill Stacie’s shoes. Jen brings with 15 years of experience as an office administrator for a local mortgage provider and we are confident that she will be a valuable addition to our team. Please join us in extending a warm welcome to Jen as she settles into her new role.
As we navigate through this transition, please know that we are committed to continuing to provide our clients with the level of service and support you have come to expect from us. We appreciate your continued trust and look forward to the opportunities ahead as we work with Jen to help achieve our clients’ goals.
As always, we welcome your comments, concerns, and questions about this or anything else related to your finances.
We wish you a wonderful and pleasant start to Spring and, despite all the allergies that come with it.
1 “Global Stocks” represented by MSCI ACWI index. Data from Morningstar as of March 31, 2024.
2 Reuters. “Nikkei at record high: Here's what analysts say”. Reuters. February 22, 2024.
Past performance is no guarantee of future results.
This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Investment advisory services offered through Ferguson-Johnson Wealth Management, a registered investment adviser.
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