Turning Brexit biases to your advantage

Kyle Williams, manager of the JPM UK Equity Growth Fund, talks Brexit, biases and behavioural finance.

Go to the profile of Kyle Williams
May 17, 2019

These are uncertain times for a UK portfolio manager. As Brexit negotiations rumble on, over a thousand days since the European Union referendum, it is perhaps easier than ever to focus on the parliamentary proceedings, headlines and tweets ahead of company fundamentals.

As humans we are subject to powerful emotional biases that can affect our decision making, often to the detriment of investment returns. Benjamin Graham said it this way in his famous book, The Intelligent Investor:

“Though business conditions may change, corporations and securities may change and financial institutions may change, human nature remains essentially the same. Thus the important and difficult part of sound investment, which hinges upon the investor’s own temperament and attitude, is not much affected by the passing years.”1

Understanding investor behaviour

The difficulty stems from the fact that humans are social beings and investing is inherently a social activity. As groups, we repeatedly veer to extremes in our optimism or pessimism, leaving mispriced securities in our wake. These behavioural biases are typically at their most extreme at times of stress, such as that facing UK investors today. During these stressful periods, it is more important than ever to have not just an understanding of these biases, but a strategy to deal with them.

One such bias worth exploring further is confirmation bias, which impacts how well we can integrate new information with prior beliefs. This bias manifests itself in a number of ways. First, we tend to seek information that confirms our belief and dismiss or discount information that disconfirms it.

Second, we generally interpret ambiguous information in a way that is consistent with our prior beliefs. Once we believe something, the mistakes we make often serve to preserve our view.2 Politicians also fall into this trap. From an investment perspective, it is essential to maintain an open mind and we think there is an edge to updating your beliefs better than others.

A particularly difficult bias to overcome is loss aversion. It’s also a bias that can have powerful effects on decision making. Behavioural economists and psychologists have observed that humans suffer losses roughly twice as much as they enjoy equivalent gains.3 That you should be twice as upset at losing £10 as you are happy at winning £10 is inconsistent with classical utility theory. We believe investors can generate an edge by making consistent decisions with regard to the opportunity set in front of them.

Exploiting behavioural biases

In the JPM UK Equity Growth fund we look for high quality companies which are exceeding expectations. This repeatable investment approach allows us to consistently identify genuine growth opportunities in the market.

 Kyle Williams is a portfolio manager for the JPM UK Equity Growth Fund.


Find out more about our UK capabilities
  1. Benjamin Graham, The Intelligent Investor: The Classic Text on Value Investing, Third Edition (New York: HarperBusiness, 2005)
  2. Chetan Dave and Katherine W. Wolfe, “On confirmation Bias and Deviation From Baysian Updating”, Working Paper, 21 March 2003
  3. Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision Making Under Risk”, Econometrica, Vol 47, No 2, March 1979, 263-292 and John W. Payne, Suzanne B. Shu, Elizabeth C. Webb and Namika Shagara, “Development of an Individual Measure of Loss Aversion”, Association for Consumer Research, October 3, 2015

For Professional Clients only – not for Retail use or distribution

This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP 0903c02a82554e34


Go to the profile of Kyle Williams

Kyle Williams

Portfolio Manager, J.P. Morgan Asset Management

No comments yet.