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MarketPsych: Applying Behavior Finance wrote a new blog post titled AAPL, TIM COOK AND HIS GAME CHANGERS: A LINGUISTIC BREAKDOWN
MarketPsych analyzes investing psychology.  But in order to do that, we analyze language. The words we choose with shareholders, clients, and the media sometimes convey much more than we ever intend them to. Tim Cook, CEO of Apple recently gave an interview about the state of his company and one of the headlines quotations taken from it was this: "I think we have several more game changers in us." It was meant to reassure investors about Apple's strength for the future.  Unfortunately, it conveys a sense of weakness.  There are at least THREE distinct problems with...
2305 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled When Will the Rally End? S&P Euphoria, French Frailty, and the Gambler's Fallacy
"On August 18, 1913, at the casino in Monte Carlo, black came up a record twenty-six times in succession [in roulette]. ... [There] was a near-panicky rush to bet on red, beginning about the time black had come up a phenomenal fifteen times. In application of the maturity [of chances] doctrine, players doubled and tripled their stakes, this doctrine leading them to believe after black came up the twentieth time that there was not a chance in a million of another repeat. In the end the unusual run enriched the Casino by some millions of francs." ~ From FallacyFiles.com: Darrell Huff &...
2314 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Did We Contribute to the #HackCrash? Light-speed Information and the Psychology of the Herd
“Rothschild coaches careered down highways; Rothschild boats set sail across the Channel; Rothschild messengers were swift shadows along the streets. They carried cash, securities, letters and news. Above all, news---latest, exclusive news to be vigorously processed at stock market and commodity bourse.” ~ Frederic Morton (1962), “The Rothschilds: Portrait of a Dynasty” There are many stories and legends surrounding the Rothschild family, and probably most are untrue.  It is widely acknowledged that Nathan Rothschild was the first Londoner to receive the news that Wellington had defeated...
2333 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Cryptocurrencies, Bitcoin, and the Psychology Driving Global Currency Values
“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” ~ John Maynard Keynes, “The Economic Consequences of the Peace” (1919). In 2008 MarketPsych’s CTO Thomas Hartman worked on a secretive software project in Panama.  The goal of that project was to disrupt and supplant the global banking system.  The fruits of such efforts are emerging in the increasing importance...
2364 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Buy to the Sound of Cannons: The Relationship Between Global Violence and Asset Prices
"Buy on the sound of cannons, sell on the sound of trumpets" ~ Nathan Rothschild, 1810 Maybe you haven’t heard the above quote, but you’ve certainly heard this variation with the same meaning - “buy on fear and sell on greed.” Easy to say, hard to do.  It is far more comfortable to speak those words in a lecture hall than it is to execute on them during a civil war.  And as we’ll see below, it is not always sage advice, especially in the case of currency trading. Fear is one of our oldest emotions.  First we must nourish ourselves to live.  Second we must avoid danger...
2419 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled A Guide to International Investing: Unstable Government? Buy it. Happy Businesses? Short it.
“He has to live in the midst of the incomprehensible, which is detestable. And it has a fascination, too, which goes to work upon him. The fascination of the abomination--you know. Imagine the growing regrets, the longing to escape, the powerless disgust, the surrender, the hate.” - Joseph Conrad, Heart of Darkness, Part 1 When a government fails – whether due to warfare, failure to provide services, or insolvency and cutbacks - the citizens of the country go through several psychological stages.  Unfortunately I’ve witnessed these stages, and gone through them myself.   I...
2419 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Making Resolutions Stick and The Least Trusted Banks of 2012
Resolutions, Honestly New Year's Day now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual ~  Mark Twain It’s 2013.  Lot of resolutions have been made: "this year I’ll exercise more, eat better, be more patient, etc…"  Yet as behavioral economists we know that most resolutions won’t be kept.  Those resolutions that are honored are usually simple and straightforward – goals that would have been achieved even if not articulated. In my experience behavioral economists are some of the worst...
2450 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled The Happiest Day of the Year and China Bottoming
“During holidays, [Norman Vincent] Peale once suggested, you should make ‘a deliberate effort to speak hopefully about everything.’” ~ Oliver Burkeman Our in-house psychologist - Dr. Frank Murtha – recently asked me, “You’ve got all this data on emotions so tell me, what’s the Happiest Day of the year? And as a matter of fact, what’s the Angriest Day?  And the Most Pessimistic Day?” I had no idea.  Based on work by Aleksander Fafula, our data genius, we know the happiest month is January (when we control for holiday greetings) and the Angriest month is September.   But...
2461 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled MARKETPSYCH SHORT FILM: THE FISCAL CLIFF - PART 1
Speaking of the fiscal cliff - and who isn't these days - MarketPsych has a new digital short film up. It is part of our on-going series for financial advisors featuring Bob, the client, and his intrepid advisor, Helen. Just a little bit of levity as we drift closer to the precipice of financial doom.  CLICK HERE FOR VIDEO (Stay tuned for Part 2 which features an in depth look at MarketPsychs Financial Crisis Plan.) We wish you a Merry Christmas and a Happy New Year. And hey... let's be careful out there. -Dr. Frankenstocks Frank Murtha, Ph.D.www.marketpsych.com
2461 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled The Psychology of the Fiscal Cliff, Bullying, and the Impact of Stress on Markets
“You have to remember one thing about the will of the people: it wasn't that long ago that we were swept away by the Macarena.” ― Jon Stewart Leading group therapy for mentally ill prisoners is never boring.  But is it dangerous?  Not really.  Humorous?  Yes, sometimes.  Enlightening?  Nearly always.  In one fascinating group, a mutiny against my leadership was led by a psychologically saavy gang-leader. I bring up this experience because it mirrors the fiscal cliff drama playing out in Washington.  While I was confronted by a different league of...
2476 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Slugs and Sugar: Gender Effects on Investing and Nokia
Slugs and snails And puppy-dogs' tails, That's what little boys are made of. Sugar and spice And everything nice, That's what little girls are made of. - Nineteenth century English nursery rhyme. ________________________________________________ “Honey, what happened to our retirement savings?” If you’re a man, your partner may have asked you this at some point in the past few years.  “Hmmm, I’m not sure what you mean?” you may evasively answer.  (The truth is, you’re very aware that you invested too much in that awesome small cap tech stock.  Sure it’s down 50% since you...
2490 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Traders Who Take Sex Hormones and the Impact of Investor Anger on Prices
"If taking female hormones actually helped you do your job, they would simply hire women here...But they don't. They don't think women are aggressive enough." ~ New York Post, citing an SAC employee and reprinted here. A couple years ago I began coaching a trader with a hormonal problem. On first meeting him I wouldn’t have noticed that anything was amiss.  As he described his history of trading – his glory days over the past decade -- his voice rose to a boom and he paced the room animatedly.  When I tried to cut in, he wouldn’t have it.  He was dominating the...
2498 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Hurricane Psychology, Buying Pessimism (RIMM), and Finding Redemption
While forecasters predicted Hurricane Sandy would be the worst storm in New York history, many people did not prepare adequately.  OK, to be perfectly honest, I did not prepare adequately.  In response to my New England-born wife’s question posed before the storm, “Shouldn’t we buy a generator?” My response, “Generator? Who needs a generator?” will probably rank as one of the more egregious on my Clueless-Man-Responses List,  just ahead of #6 “No, I know where I’m going, I don’t need a map,” and just behind #4 “Anniversary?  You mean today?” In my (and my...
2512 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Resentment Investing: Fading Soros, Emotional Ruts, and Doubting the Bull
Breaking the Bank When George Soros “broke the Bank of England,” famously earning him $1.1 billion on a single trade, it was not only the Bank of England who was rocked by losses.  Some ambitious and formerly successful traders had bet against Soros – traders such as Bob.  Some background:  In 1990 the Britain's Thatcher government decided to join the European Exchange Rate Mechanism (ERM).  The ERM was a system to reduce exchange-rate variability.  With U.K. inflation at three times the rate of Germany's and interest rates at 15 percent, the conditions for remaining...
2519 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Psychopaths at Hedge Funds, Google, and The Persistence of Bad News
The School of Life Street craps – played with two dice on a sidewalk - is little like its casino brother.  The odds are different, the pace is much faster, and your dealer is typically a hustler or worse, a psychopath.  As for me, I learned how to deal street craps in prison.  As a psychiatrist I’ve evaluated competency and treated mental illness among prisoners, some of whom were hustlers or psychopaths.  Street hustlers in my experience are usually quite engaging and reflective, able to gain insights and do productive psychological work. ...
2519 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Plummeting Confidence in the Financial Industry
Another day, another fraud accusation at a major bank.  Makes me want to put all my savings in bitcoin. Here is a graphic depicting the declining trust in the U.S. financials sector since 2000.  Note that it is relentlessly dropping. Here's a chart of the declining confidence in US and UK banks based on a textual analysis of social media (from marketpsychdata).  Looks like the financial crisis was just the beginning of the damage to banks' reputations. This declining confidence bodes well for hard assets (real estate, gold, bitcoin, etc...).  But it does not bode well for...
2519 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled MarketPsych Films Presents: The Facebook IPO - Part 2
In Part 1 of our series, Bob insists to his financial advisor, Helen, that he be part of the Facebook IPO. In Part 2 of our series (above) his position is down nearly 50%, but is he discouraged?  Not in the least!  We have all fallen in love with stocks.  The dopamine starts to flow, the attachment forms, and we experience a sense of euphoria picturing the windfall we see in our near future. But there is an immutable truth in investing: Revenue > Awesomeness. Bob has yet to learn this. And he has a lot of company, unfortunately. Part 3 to come.  (This stuff...
2519 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled MarketPsych on Nightly Business Report (NBR)
MarketPsych was on NBR Tuesday (08/08) (link here) discussing the fallout from the Knight Capital trading incident and its effect on investor confidence. The initial reaction of many people is to consider this the latest in a long line of market scandals eroding investor confidence.  I think that would be mistake.  For one thing, Knight's software error is not a "scandal".  It's a blunder.  A big one to be sure, which is why they are paying a heavy price. Here's a thought worth considering (and perhaps a phrase worth coining): Screwing up is not the same...
2597 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled The Aging Consumer and SST
An idealist believes the short run doesn't count. A cynic believes the long run doesn't matter. A realist believes that what is done or left undone in the short run determines the long run - Sydney J. Harris In a recent book, The Aging Consumer, Aimee Drolet, Norbert Schwarz, and Carolyn Yoon have compiled a summary of a number of research studies regarding how aging affects decision making.  Given our demographics, insights into how our aging population make decisions could help those who are living it as well as those who advise an aging client population. In one...
2643 days ago
MarketPsych: Applying Behavior Finance wrote a new blog post titled Greece, Democracy, and the Psychology of Financial Collapse
"[T]he values to which people cling most stubbornly under inappropriate conditions are those values that were previously the source of their greatest triumphs." - Jared Diamond, Collapse: How Societies Choose to Fail or Succeed In Collapse: How Societies Choose to Fail or Succeed, Jared Diamond (UCLA professor of Geography) described the collapse of civilizations as a gradual environmental process, fueled by systematic behavioral weaknesses evident in inertia and short-term thinking, culminating in a rapid unwinding too rapid to stop.  As he describes it, as...
2656 days ago