Are creatures better than us in computation?

A number of recent news stories have had a similar kind of message: animals viscerally understand certain mathematical operations better than humans do. Such stories are always interesting in a Sunday-newspaper sort of way, but do the abilities of animals to calculate really exceed those of humans? It may help to examine some of these claims.

Lessons for us:
– Creatures learn and apply.The don’t agonise and get confused.
– Creatures don’t use algorithms or keep spreadsheets. They come up with the best estimates.

Takeaway: the innate instinct that we share with creatures can help us make better snap judgements!




Fear memories – do you have it?

What if losses are real and the magnitude of it is also real? ( In contrast to what was discussed in previous post, where memories or magnitude of the event was imagined or implanted)

Why do financial losses (regardless of magnitude) leave a greater impact on some while others are able to move on easier?

Based on this research, if the event of loss created a shock in us, then it releases a neurochemical (noradrenaline) that causes the fear event to be saved/encoded as Fear Memory. ( versus an ordinary memory)

Once this Fear Memory is encoded, multiplied by them being recalled (beep) each time electric shocks like: unrealised losses or the risk of losing rear their heads, it makes decision making on a neutral state a big challenge. Fear dominates and overwrites rational. Fear Memories, if not made aware and if allowed to lurk in the back ground, subconsciously, causes fear induced or biased investment decisions.

Had this happened to you?


People can be convinced they committed a crime … or incurred losses

Did you know that people are able to internalise stories told to them, even though they never did happen? These are called “implanted memories”. Did you know that implanted memories can vary from childhood “memories” to even investment losses? When it comes to money, it’s normally not the absence of the event, rather, it’s the magnitude of the loss. Larger in memory than the actual.

Some catalysts for these can be the constant pounding of bear market stories or stories of losses suffered by other investors in the media. These create the impression that a similar situation had happened to the person. Often in reality, losses are smaller than “thought”, but are magnified in their mind due to the repeatedly told stories of losses. Be careful what you hear.


How to pick the right strategy for the current market

PUBLISHED: 06 JAN 2015 00:08:28 | UPDATED: 06 JAN 2015 06:10:52

#xjo put spread
All trading needs a view that traders and investors are prepared to back with cold hard cash. There are a range of opinions about the immediate outlook for Australian shares. They extend from the market not doing very much over the next month or so to the market experiencing a period of weakness before picking up as the year progresses.

Monday’s activity was in line with the first view as the first full trading week of the year was fairly lacklustre.

If the view is that Australian shares won’t do much worse over the next few weeks than the current 5400 to 5500 level for the ASX 200, one strategy that option traders might consider is a put option spread.

The strategy, says Ord Minnett senior derivatives adviser Wai-Yee Chen, focuses on looking to profit over the next month by trading the time value associated with XJO index options.

With the ASX 200 index potentially marking time around the 5400 level there is the opportunity, says Chen, for a more aggressive trader with this view to generate some income over the next 45 days between now and when the option expires on February 19. It’s a view that may eventuate due to a number of market influencing factors, she reckons. If there is switching, for instance, between sectors over the next couple of months.

There could be downside threats to industrials ahead of the reporting season while downtrodden resources such as Rio Tinto and Woodside may attract some demand from investors. The net of these influences could leave the Index around the 5400 level.

If this view plays out, says Chen, traders who sell the 5400 XJO February 2015 put can earn a credit of 86¢ while buying the 5300 put as a protective move for a maximum of 100-point downside, can generate 28.5¢ income per contract.

The strategy is an aggressive one as the maximum loss from the trade is 71.5¢ per contract which will happen of the index slumps below the 5300 level. On the other hand if it stays around the 5400 level or rallies beyond this the strategy will pay a profit of 28.5¢ per contract.

As derivatives strategies go, a put spread can have a multi purpose. Unlike an outright put option, which is generally employed by bearish traders, it can profit from a bull, bear or neutral market. But if the market does turn bearish traders will need an exit strategy to minimise any loss from this particular trade. There are market watchers who believe the Australian sharemarket will remain weak into the first half of 2015.