Why your Footy Tipping is Struggling!

“The single greatest challenger you face as an investor is handling the truth about yourself” – Jason Zweig

The way investors think and feel affects the way they behave when making investment decisions. These influences can be categorized and identified as behavioural biases. They affect which company to invest in, or what footy team to tip.

There are a number of others, of course, that both investors and AFL personnel suffer from, e.g. ‘optimism bias’, ‘self-serving bias’, ‘hindsight bias’ (for another post perhaps) but below are four common biases that I believe you can relate to:

Bandwagon Effect

Quite commonly referred to in AFL fan forums, is defined as the tendency to do (or believe) things because many other people do (or believe) the same. Also referred to ‘group think’ and ‘herd behaviour’. This is common when it comes to business beliefs and investing in the stock market. If everyone is suggesting you should own cannabis stocks or bitcoin, and you spend enough time listening to them, you will inevitably own cannabis stocks or crypto currency. Dare I say, the bandwagon effect is well and truly prevalent in the AFL. Some supporters are accused of ‘jumping on the bandwagon’ when their team finally starts to win a few games.

The bandwagon effect not only impacts supporters, but football clubs as well. Who remembers Collingwood’s trips to Arizona and other high altitude locations and the rush for other clubs to copy them due to their success on the field? A lot of clubs at the time installed high altitude rooms at their training headquarters, and one of them has recently re-named their altitude room to the ‘attitude room’.

Quite a dangerous that might cause you to get on a train (rising market) at exactly the wrong time.

Recency Bias

We all suffer from it, passionate AFL fans through to seasoned investors. It is the belief that what has recently happened will continue to happen.

How many times have we tipped the winning elimination finalists to defeat the losers of the qualifying finalists in the second week of September? This is despite the elimination finalists being superior during a 22 game season. We anchor ourselves to the most recent results.

If equity markets are falling, the human brain is conditioned to believe it will continue to fall. If we have read an interesting piece of research suggesting the market is overvalued, and we are then presented with new information shortly after, we are more likely to anchor our thinking using the information from the most recent research report we’ve read.

Needless to say, recently bias can leave you forgetting about the bigger long term picture.

Outcomes Bias

The Investment and football industry is a results based business. Outcomes make or break careers Outcome Bias is the tendency to judge a decision by its eventual outcomes instead of being based on the quality of the decision at the time is was made.

Imagine receiving a stock tip at the races and acting on it without undertaking any research at all. Now imagine your investment doubling shortly after. The outcome was profitable, an outsider without knowledge of the reasoning behind the investment would consider you a genius, however the decision one would argue, was reckless.

Consider the plaudits we hand to AFL coaches when some of them decide to move their full back to full forward when the game plan has gone out the window, and subsequently the move works. Or the AFL coach that instructs his players to throw caution to the wind take the game on at all costs because they’re down by 8 goals at half time and the game turns. A reckless move, a move they would have not considered going into the game, but the outcome is satisfactory and we move on.

‘Endowment Effect’

It’s one of the major reasons why business does not get done when the AFL Trade Period comes around. The Endowment Effect is the tendency for people to demand much more to give up an object than they would be willing to pay to acquire it. For example, in the past, some AFL clubs were accused of wanting too much in return for players on their list. However, they were willing to give up much less than what they were demanding when they were indeed chasing a player with equal capabilities.

This bias might lead you to hold onto an investment thinking it is worth much more than it is.

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