In 2007, the Chairwoman of Qantas, Mrs Margaret Jackson, was supportive of a takeover bid for Qantas at $5.45 per share. With acceptances of the offer waning, Mrs Jackson told the Australian Financial Review regarding the impending withdrawal of the bid, “If anyone thinks this will happen without affecting the (share) price then they have a mental problem with how the market works.” She received sharp criticism for her comments, especially from the mental health community. In addition, she was accused of underestimating the abilities of the shareholder, many of which were retail investors, to make a rational decision. By late 2013, Qantas (QAN) shares hit a record low of 96 cents.

 

Had Mrs Jackson suggested that those shareholders who failed to accept the takeover offer were subject to several cognitive biases including Anchoring and the Endowment Effect, she may have escaped the criticism, even if few people understood what she was referring to.

Sadly, the term “Mental” has been hijacked in popular parlance to represent a slur on a person’s character, and is short for mentally ill. However, its original meaning refers to things of the mind, specifically intellectual (cognitive) and emotional.

 

This presentation looks at cognitive biases in two parts. Those affecting

• how we trade including mechanical versus discretionary trading, decision making and risk management
• the markets we trade, which trading platform / software we use, which instruments we trade with, which broker we use, and our approach to financial education and training. This aspect is often overlooked as the “how” normally dominates discussion. Crucially, it may be these factors are prone to cognitive biases that limit the chances of the actual trading ultimately succeeding.