Thursday 9 April 2020

The Hot Hand

As I write this post, markets in both the UK and the USA are continuing to have a strong week with the S&P 500 almost 28% up from it's nadir on March 23rd and the less broad FTSE 100 up a little under 20%. From their highs, the two indexes are down just 17% and 24% respectively. 

At the end of yesterday my personal holdings were down 11.4% from their high of February 19th, which is a lot better than the 23.4% they were down on that miserable Monday 23rd March. Keeping this in perspective, I'm back to where I was last October. 

I'm one of the lucky ones during this 'lock-down' because I can continue to work remotely and in addition, have little to spend my money on, although when you get to my age and your net worth can move by six figures in one day due to the markets, saving a few quid by not going out for dinner or a few beers isn't exactly impactful although old habits die hard, and I do still track my spending. 

Technically the US stock market is now in a new bull market as it is up 20% from its bottom, but in my opinion there is a significant chance that this rally is a "head fake" and the lows of March could well be revisited. It seems that the market is reflecting a 'best case' scenario, expecting that 'V' shaped recovery and jumping on every bit of good news about the apex but there is a long way to go yet, and the possibility of a second wave of COVID-19 next winter.

Still no sports of course, and while I have plenty of time now for research, with no return date in the near future, motivation is an issue although I've just started reading Ben Cohen's "The Hot Hand" which I'm hoping will give me some ideas.
For decades, statisticians, social scientists, psychologists, and economists (among them Nobel Prize winners) have spent massive amounts of precious time thinking about whether streaks actually exist. After all, a substantial number of decisions that we make in our everyday lives are quietly rooted in this one question: If something happened before, will it happen again? Is there such a thing as being in the zone? Can someone have a “hot hand”? Or is it simply a case of seeing patterns in randomness? Or, if streaks are possible, where can they be found?

In The Hot Hand, Wall Street Journal reporter Ben Cohen offers an unfailingly entertaining and provocative investigation into these questions. He begins with how a $35,000 fine and a wild night in New York revived a debate about the existence of streaks that was several generations in the making. We learn how the ability to recognize and then bet against streaks turned a business school dropout named David Booth into a billionaire, and how the subconscious nature of streak-related bias can make the difference between life and death for asylum seekers. We see how previously unrecognized streaks hidden amidst archival data helped solve one of the most haunting mysteries of the twentieth century, the disappearance of Raoul Wallenberg. Cohen also exposes how streak-related incentives can be manipulated, from the five-syllable word that helped break arcade profit records to an arc of black paint that allowed Stephen Curry to transform from future junior high coach into the greatest three-point shooter in NBA history. Crucially, Cohen also explores why false recognition of nonexistent streaks can have cataclysmic results, particularly if you are a sugar beet farmer or the sort of gambler who likes to switch to black on the ninth spin of the roulette wheel.

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