Investment–Harmless Superstition NOT

8th September 2014

Numerous pieces of irrational nonsense are passed off as “harmless superstition” . Nowhere is this more the case than with investment advice where the search for the holy grail of riches without risk, fear or hard work ever beckons.

Is superstition harmless….. actually no. And that, according to the Economist report of August 30 2014.

Thus we find that the Chinese love of the number “8”  (which sounds similar to “prosperity” in Chinese) and their studious avoidance of the number “4”  (which sounds similar to death) leads to investment strategies which seek prices for assets ending in “8” rather than “4”.

The consequence? The research shows, for the studies examined and more broadly “superstition driven trades” on the Taiwanese stock market, returns diminished by around 2%.

Before concluding that Chinese culture and superstition is a returns killer though, consider the very widespread research on “anchoring” a phenomenon whereby people of all colour and hue attach unjustified significance to round numbers (e.g. those ending in zero), “certain” numbers e.g. 100 (rather than 99) or perhaps 1,000 (rather than 1002) or the first number they were confronted with at an auction.

The lesson? Eschew and avoid witchcraft and clear nonsense just as you would avoid walking under a ladder.

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