Thinking Is Good For You.

This image appeared on my LinkedIn feed last week and you may ask what it has to do with trading.

The answer is quite simple—a lot because the image itself and the responses it generated demonstrate why people fail at investing. All the responses I saw agreed—they were little more than echoes of the original post. Not a single one called into question the data presented. It was accepted at face value.

Interestingly the post is completely and utterly wrong. Leave aside its complete misunderstanding of how obesity works and the fact that you cannot out-train a bad diet- 30 seconds of research would show that it was wrong. But nobody put the time into considering that either because they were too lazy or it confirmed a pre-existing bias.

According to WHO statistics, about 13% of adults worldwide are obese. This equals roughly 1 billion people, not 5 billion.

Its relevance to trading is simple. Consider the snip below which shows analysts’ price projections for SPK.

If you took these ratings as gospel and many people do then you would simply go long SPK. You would also believe the price projections for the stock which have an average price projection for next year at $3.49 with the highest prediction being $4.55.

This is the current price chart of SPK with the drawdown plotted.

However, most would never look at this since it would require thinking as opposed to simply deferring to a higher authority. Or allowing your internal biases to be confirmed.

Two simple questions would answer the question as to whether the analyst’s predictions had a basis in reality or were simply guesses.

1. Is there more red than green on the screen?
2. Is the price below its long-term moving average?

The answer to both is no. But most would never get as far as asking these questions because it would involve the effort of thinking.