Finology - behavioural FINance and investor psychOLOGY - knowledge and skills substantially enhance practitioners' ability to communicate with clients and manage portfolios more effectively. This Backgrounder seeks to foster a greater understanding of and interest in finology.
I believe time allows signals to surface amidst the ubiquitous noise. In the spirit of Annie's "just thinking about tomorrow..." in which she pleads for us to "hang on 'til tomorrow, come what may," I present my 2021 predictions for the coming five years.
The first generation of behavioural finance described people as "irrational", fooled into cognitive and emotional errors that diminish wealth. The second generation of behavioural finance describes people as "normal" - we use shortcuts and sometimes commit errors on the way to satisfying our wants.
Incumbent investment frameworks such as Value, Shorting, Passive and Index Aware strategies are failing. Going forward, successful investors will need to be extremely selective when allocating capital.
Since the early 1980s, developed market government bond yields have broadly been falling, with investors voicing concerns that the asset class offered little or no value. Continually, they have been proven wrong.
Decarbonisation and data growth will dominate every aspect of our lives for decades to come. If your infrastructure manager isn’t leveraging off these themes then you need to find a new one.