On Friday I wrote that Greece's debt problems represent the thin end of a wedge. If Greece starts to unravel then the rest of the Eurozone's thick end could pull down the whole edifice. And first on the casualty list are the banks.
But then, to my astonishment I read this in one of the Sunday papers: "The Greek-focused panic in the markets is creating some fantastic investment opportunities..."
That's how the head of Schroder European fund sees it. He reckons there are opportunities in the European banks. Is he mad?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In fact, as I write, the bank stocks are falling again and nowhere more so than in the eurozone.
It didn't take me long to see why the fund manager feels this way. To my mind, he's making a big mistake and it's one we're all prone to make. I'll show you what I mean.
Now that's one ugly baby!
The more you love something the better looking it gets. Like parents fixated on their newborn they always look beautiful to them. And it's the same for investors and their stockholdings.
Once you've made an investment it's incredibly easy to see beauty even when it looks downright ugly to everyone else.
The fund manager in question has a large exposure to European banks. One of his largest holdings is the French bank BNP Paribas. And guess what? That holding has taken a pounding because of its exposure to Greek debt.
But this guy seems committed to his investment. And that can be dangerous.
But then we all do it. We read the newspaper articles that confirm our biased perceptions and ignore articles that don't. We hate anyone with the temerity to point out ugly flaws in our beloved investments. We'd rather cover our ears.
I love nothing more than tuning into a bulletin board of a stock I hold. The arguments between stockholders and their arch-enemy, the short-sellers can be viciously exciting. Once investors have put their money down, their loyalty is unerring and the battles are fierce. Here you'll get a front row seat on investor bias.
And these prejudices work the other way round too. If an investment has had a particularly good run and you've not jumped aboard the gravy train, it's easy to declare the investment as nothing more than a bubble.
Plenty of smart investors will tell you that gold is in a bubble. Do they hold gold? Of course not. It's too damn ugly!
The point is whether you've committed money to an investment, or made the active decision not to invest, then it's all too easy to lose your objectivity. And that's when you make mistakes.
I have a three-point plan to see things more clearly.
Three tricks for being more objective about your investments
First, let diversification help you. A diversified portfolio helps reduce risk and gives you the option of changing your investment mix as opportunities show up. But on top of that, it can help you kick a bias.
Recently I argued that creating a balanced portfolio will often push you into holdings that you don't even like.
That's why I still hold a slug of government bonds. I don't like the investment. I hate the idea of lending my money to a government sliding ever closer to insolvency. But as part of a balanced portfolio, I hold anyway. And because I hold those bonds, I feel a little more generous towards the sector. Though the child looks ugly, I can see its better qualities. I see its steadfastness as my equities get buffeted around.
The secondway to kick a bias may sound a bit school-boy'. But I'm a great believer in it. And that is keeping an investment diary. Every trade you make, you note down why you made it and what you expect it to achieve.
By regularly reviewing your notes you'll find that you can judge your investments and returns more objectively. Your notes will help you see the error of your ways. If your reason for buying a stock turned out to be wrong, then it's better to dump the stock before the rose-tinted specs blur the view.
My final way of clearing away the biases is to make an effort to read more widely. It's hard to read articles that don't sympathise with your views. But you can still disagree with the article. And only by understanding the enemy can you see their weaknesses and ultimately win the battle.
That's why I'm often surprised when I get emails from readers saying something like Your colleague at MoneyWeek just said the opposite to you'
But to my mind that's the beauty of MoneyWeek. There is no party line. Among the team are inflationists' and deflationists', commodity bulls and bears; whatever the topic, there'll be diverse views.
I've never been told to promote one sector over another, or to write about specific subjects that the team' encourages. That's why I know that anything I read from MoneyWeek is the genuine view of the writer. Different viewpoints are exactly what we need. Vive la diffrence is what I say.
This article is taken from the free investment email The Right side. Sign up to The Right Side here.
Important Information
Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.
Managing Editor: Frank Hemsley. The Right Side is issued by MoneyWeek Ltd.
MoneyWeek Ltd is authorised and regulated by the Financial Services Authority. FSA No 509798. https://www.fsa.gov.uk/register/home.do
Will “Liberation Day” strike again?
Israel claims victory in the '12-day war' with Iran
