Courtesy of Tim of the Psy Fi Blog
This was the month that saw Goldman Sachs' Muppetgate, and a $1.5 million book deal for Greg Smith, the man who precipitated it. Perhaps the most interesting revelation was that Smith’s role of “executive director” apparently equates to “teaboy”, if inside reports are to be believed. This grade inflation presumably reaches all the way to the top, or to “God” as CEO Lloyd Blankfein is now known. At least that would mean his much derided comment that bankers were doing God’s work finally makes sense...
Research and Posts
Interesting research published in March included the idea that it's institutions that cause bubbles not private investors, at least in South Korea (Are Individual or Institutional Investors the Agents of Bubbles?). Meanwhile the German Bundesbank came down firmly against the idea that women are more risk adverse when it comes to money in Executive Board Composition and Bank Risk Taking. It's probably fair to say that the general response to this was less than positive; e.g.Bundesbank Comes Out Against Women, War On All Good Things Continues, Puppies and Ice Cream Targeted Next from FT Alphaville. And, in the month that saw unarmed teenager Trayvon Martin shot dead, a pre-release from the University of Notre Dame suggests that holding a gun makes you think others are too.
Over on StockTwits Howard Lindzon posted a follow-up to Noise, Sentiment and StockTwits, adding to the research indicating the rising importance of social media and particularly Twitter, for investors. The data continues to flow, as The Impact of Divergence of Opinions About Earnings within a Social Network (actually StockTwits again) provides yet more evidence that tweeters' sentiment predicts stock movements. This one's going to run and run.
Annoyed and Upset
Meanwhile, as usual, I wrote some stuff about behavioral bias and all that. One of the more popular articles was Risk := ON, about the likely mean reversion of high profit margins, although that was probably because Barry Ritholtz linked to it, which triggered the normal small avalanche of interest. The financial blogosphere also figured quite highly in Why There’s Never Been a More Dangerous Time To Invest, which was written in response to Tadas Viskanta's Abnormal Returns post There Has Never Been A Better Time To Be An Individual Investor. I think we're both right, but I could be biased ...
Less controversially Craving a High: Trading on Dopamine covered the research showing that there’s a link between the genetic disposition for the hormone dopamine and successful, or unsuccessful traders. Too much and you’re turned on by risk for risk’s sake. Too little and you can’t bring yourself to trade at all. We also added to past research on the duel between economics and happiness in Manifesto for a Low-Growth World, by re-examining the evidence that suggests more money doesn't make us happier, and we should spend it on experiences rather than physical goods.
In the coming month we’ll turn our attention to the links between non-dividend paying stocks and investors’ tendency to overvalue them, why we don’t want to save enough for our retirement but will make sacrifices for someone else’s and the terrible truth that most of the time we don’t know what investment decisions our brain is making for us, and what we can do about it. I might write about something topical as well, if anything interesting happens.
Articles this month:
- Risk := ON -- (thread: Risk Management)
- Salience is Golden -- (thread: Availability)
- Caught in a Rat Trap: Jevons’ Paradox -- (thread: Environmental Economics)
- Manifesto for a Low-Growth World -- (thread: Happiness)
- Hubble, Bubble, Index Trouble -- ( thread : Index Trackers)
- Craving a High: Trading on Dopamine -- (thread: Neuroeconomics)
- How To Be A Bad Manager: The Pygmalion Effect -- (thread: Self-Fulfilling Bias)
- Do Stocks Always Outperform (in the Long Run)? -- (thread: Loss Aversion)
- There’s Never Been a More Dangerous Time To Invest -- (thread: Maximising Shareholder Value)