Geopolitical Risks to the Market

May 21, 2008

Henry wrote:

I’ve read that the market is at the mercy of
geopolitical risks. Do you think so? Also, what do you consider to be
the biggest geopolitical risks facing us today?

The market
is no more at the mercy of geopolitical risks today than it has been in
the past. People suffer from a number of cognitive biases that impair
their investment performance. One of them is hindsight bias, which is
the tendency to think past events were predictable when they were not.
Another, which has no name that I’m aware of, is a tendency to assign a
higher perception of risk to future possibilities even when we know how
similar events have played out in the past. It’s forever worse this
time.

Complete Story »