Quarterly Insights - Q1 2024
April 17, 2024
Dear Clients, Colleagues and Partners
“NOTHING IN LIFE IS AS IMPORTANT AS YOU THINK IT IS, WHILE YOU ARE THINKING ABOUT IT”
DANIEL KAHNEMAN ~ THINKING, FAST ANDSLOW.
A key concept in our investment approach is the idea that the fear of losing money is a much greater driver in human decision making than the hope of winning. Put in another way, investors tend to make choices that minimise potential losses rather than maximise expected gains. This is the fundamental principle behind Prospect Theory, the theory developed by Daniel Kahneman and Amos Tversky in 1979. Professor Kahneman went on to receive the Nobel prize in economics for his work on Behavioural Economics, despite never taking an economics course during his lifetime.
Prior to their groundbreaking research and findings, traditional economics assumed all humans act in a rational way, which can be explained through a statistical model, known as a utility function, with quantifiable variables. Today we know reality is rather different, and our decision making is greatly impacted by heuristics or cognitive biases. These biases tend to get exacerbated as the stakes are raised, and can warp our judgment, often with counterintuitive results.
Professor Kahneman passed away at the end of March. Sadly, I never met him. However, I can categorically say his work has left an impact like few other. Those who’ve read our past letters will know Prof. Kahneman is perhaps the most frequently quoted individual in them.
If you have not done so yet, get yourself a copy of Thinking Fast and Slow. Seen as a seminal work in psychology and behavioural economics, the book is as much a work of art as it is science. As the FT put it: ‘There have been many good books on human rationality and irrationality, but only one masterpiece. That masterpiece is Thinking, Fast and Slow'.
In the book Prof. Kahneman introduces the concept the two systems of thinking that govern human decision-making: System 1 and System 2. System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control. It's intuitive, emotional, and subconscious. System 2, on the other hand, is slow, deliberate, analytical, and crucially to us, governs our investment approach.
Here at LeifBridge, we stand on the shoulders of giants when making decisions about capital allocation or security selection. None more so than Prof. Kahneman.
With that, on to the quarterly letter…
Read the full article by downloading the PDF below.
CONTACT US
For further information on any of our services, or if you would like to arrange a meeting with an investment manager to see how we can work with you, please get in touch.
LeifBridge Investment Services
Shard Capital Partners
Floor 6, 51 Lime Street
London, EC3M 7DQ
United Kingdom
Telephone: +44(0)20 7186 9900
Email: Info@Leifbridge.com
www.leifbridge.com
Disclaimer:
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IMPORTANT INFORMATION
LeifBridge is a trading name of Shard Capital Partners LLP. Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office:36-38 Cornhill, London, EC3V 3NG.. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
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Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
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