Conversation with Christian Billinger: In Defence of Cognitive Biases

We had the pleasure of speaking with Christian Billinger, Investor at Billinger Förvaltning, a Sweden-based investment company with no external capital.

We discussed Christian’s essay, In Defence of Cognitive Biases, in which he articulates a thesis that cognitive biases may have utility in the real world:

“What we are questioning is the approach of taking these insights [of academic behavioural finance] and directly applying them to a ‘real world’ environment where we are dealing with unknown (and unknowable) payoffs and probabilities. We find that what is considered a ‘bias’ is in fact often a rational and pragmatic rule for dealing with an uncertain and complex environment, especially by those who have spent considerable time developing expertise in the field…”

“Another aspect to consider is that the claims of behavioural finance theorists are often based on individual behaviour as opposed to large aggregates like financial markets, which reflect the behaviour of very large numbers of actors. This makes the relevance of these ideas in practice even less clear.”

“What the research suggests is that most of the time, intuitive thinking works relatively well. This intuition is often also the result of long practice in a specific field. However, intuitive thinking is less likely to work well under time pressure and other kinds of stresses…”

“Behavioural finance and research into cognitive ‘biases’ is today a very large field and as a result we will necessarily need to focus on a few aspects that we feel are key for long-term equity investors; we have there picked four topics/’biases’ that we think are highly relevant to equity investors…”

“Ultimately we are trying to follow Charlie Munger’s advice when he says, ‘Figure out what works and do it’.”

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About:

Christian Billinger is an Investor at Billinger Förvaltning, a family-held investment company with no external capital. The simplicity of the setup as well as permanent and patient capital provides Christian with the proper environment to pursue his strategy of identifying long term compounders.

Christian focuses first on the qualities of robustness and resilience which limit downside potential before determining the mix of returns on capital and scope for reinvestment opportunity that accounts for the upside. Often, these factors overlap with family-controlled management teams that more conservatively finance their operations.

Prior to Billinger Förvaltning, Christian worked as a European Equity Analyst for various investments funds. Before that, Christian was an associate at PwC. He holds an MS in Accounting and Finance from The London School of Economics as well as Karlstad University. He is also a CFA charterholder. He splits time between London and Sweden.

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