Your Self-Inflicted 6% Trading Tax

How Not To Make Money

Making a turn from the markets is hard, we all know that.  Unfortunately we tend to make it a lot harder for ourselves than we need to, and if we don’t then the investment industry is always there to lend a helping hand.  For an extortionate fee, of course.

We’ve already looked at the gross amount of money we conspire to lose each year – something in the region of $160 billion a year in the US alone (see: The 160 Billion Dollar Bezzle).  Now a UK writer has looked at what this means for us as individuals.  The answer is, very roughly, a cost of 6% a year.  Which, when the average return from the stockmarket is probably no more than 5%, makes for a not very good way of making money.

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How Sneaky Governments Steal Your Money

Debt Do-Do

Many nations in the developed world are in deep do-do with their debt levels. On one hand they need growth to earn their way out of their problems, while on the other they’re being forced into anti-growth austerity measures by markets, concerned about their spiralling interest obligations. It’s a grim position for those of us brought up to expect an unrelentingly rosy economic outlook.

This isn’t a new situation, though. We’ve been here many, many times before and governments have, by design and evolutionary accident, developed many, many ways of dealing with these problems. The cunning thing is that many of these involve stealthily thieving from their own citizens, but done so surreptitiously that, if we’re not careful, we won’t even notice it.

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Fooled By Fluency

Q: How many animals of each kind did Moses take on the Ark?

Mere Exposure is Not Enough

In 1968 Robert Zajonc identified an odd behavioral bias, known as the mere exposure effect. This predicts that people will prefer items that they’re familiar with over those which they’re not – and that repeatedly exposing people to something will increase their preference for it. Cue a thousand feeble advertising campaigns.

There’s more than a hint of suspicion that behind mere exposure lies a more fundamental bias, one that spills over into all sorts of apparently irrational behaviour, some connected to money and others not. The idea is that familiarity breeds fluency, or ease of neural processing. So if you’re thinking that Moses had an Ark, that you should name your company q@l&tee or that your favorite whacky font type doesn't affect people's financial I.Q. then think again.

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Money Illusion

Sleep Soundly

Money illusion is just about the most venerable of all of the behavioural biases that afflict people’s financial good sense. It was recognised back in the early part of the twentieth century, was an integral part of financial theories from thereon and spawned a range of measures that are more or usually less useful to us in everyday life.

Then economists decided that money illusion was … illusory. Which led to various predictable, albeit unpleasant, consequences such as believing “you can’t go wrong with property” or that storing cash in your mattress equates to sensible financial planning. Being poor is one thing, but not being able to get a good night’s sleep is entirely another …

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