Observations

Looking Out for Your Financial Future

1 - Nov 2019

Evidence vs. emotion: How we make investment decisions

Welcome to the first edition of Observations. This blog will be a regular way to hear from all of us at Telarray about a wide variety of topics that affect your financial future.

Our first topic is as basic as it is important: How we make decisions about investing. 

Those of you who know Telarray well understand that we follow the hard data as much as possible in making our investment recommendations.  We don’t go on hunches, guesses, or the latest Wall Street analysts’ report.

In fact, this chart from Bloomberg (below) shows how far off analyst earnings estimates have been. Each color represents how the earnings estimate changed during the analysis period. Please note that these periods start almost 2½ years before the end of the financial reporting period. A lot can change in this time frame.

You’ll see that for years 2013 through 2017, analysts were overly optimistic and were forced to lower their numbers often by as much as 20%.  For years 2018 and 2019, the analysts were overly pessimistic and were forced to raise their numbers by 10-15%.  (Source: https://www.bloomberg.com/news/articles/2018-10-03/companies-are-furiously-guiding-down-analyst-earnings-estimates

Instead, at Telarray, we focus on an evidence-based approach that looks hard at what has happened in the past. Some critics might say that markets have changed so drastically over the last 10-20 years that historical results may not carry the same weight as before.

We think that although technology has changed the markets in some significant ways, human psychology hasn’t changed much. We are still vulnerable to the same cognitive and emotional biases as our ancestors were.  We still fall for hype over reality, for emotion over logic, and for shortcuts over careful analysis. 

There is a lot of mythology about financial markets that we hope to dispel through future editions of Observations. Please contact your advisor or me via our website with questions or topics you’d like to see covered.

Warren Coleman, CFA/CAIA

Author:

Warren Coleman’s 20 years as a Commander in the U.S. Navy’s submarine force give him unique experience in researching information within a dynamic environment, leading a team and making important decisions under pressure.

He joined Telarray (then FSG Investment Management, Inc.) in 2005 as Chief Investment Officer, and was awarded the Chartered Financial Analyst (CFA) designation in 2006. Coleman manages assets for individual clients, trusts and 401(k) retirement plans, and leads Telarray’s Investment Committee, discussing portfolio allocations and investment strategy. He also keeps clients abreast of economic conditions and relevant market trends and supervises the firm’s trading desk.

He received his undergraduate degree from Vanderbilt in Physics with a minor in Mathematics, and a Master’s in Business Administration from Bowie State University (MD) while stationed in Heidelberg, Germany. Coleman also has a Master’s in National Security and Strategic Studies from the U.S. Naval War College.