Gaia And The Ambivalent Investor

Delusional

We're very keen on people who are very definite about things – even if it subsequently turns out they're wrong or delusional (or both). We're less interested in people who are less certain about things. We don't value ambivalence in our gurus.

Unsurprisingly we're wrong about this. The ambivalent investor is sometimes that rare thing, a genuinely sensible expert in a field dominated by loud mouthed, impossibly certain charlatans. And mostly it doesn't matter which side of the fence you favour, you'll be better off sitting on it. 

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Disposed to Lose Money

Quizzical Behaviour

Most people think that game show hosts are more knowledgeable and intelligent than the people they ply with their inane questions. Obviously they’re more knowledgeable: they have the answers in front of them, but are they smarter?

Despite the obvious fact that assuming someone is smart because they can read answers off a card without falling over is blatantly absurd, this fairly straightforward observation makes little difference to studies of this behaviour, the tendency to attribute to a person certain fundamental qualities based on nothing more than the situation we find them in. As usual, this is a one way ticket to losing money.

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CEO Pay – Because They’re Worth It?

Poor Chief Executives

In the United States CEO pay dropped by an average of 2% in 2009. Still, ordinary workers needn’t shed too many tears as the average total compensation for an S&P500 CEO hovered around the $11 million mark. Perhaps more significant is the gap between the average CEO’s and the average worker’s pay. From CEO’s earning 42 times more than employees in 1980 this soared to a factor of 525 in 2000 before declining to a still eye-watering 319 times in 2009. Here in the UK we find a similar discrepancy between the boardroom and the shop floor.

This doesn’t automatically mean that CEO’s are overpaid, although there’s no evidence either way that they’re providing 319 times more value than their underlings. Indeed, it’s hard to see how you could ever disentangle the various causes and effects to determine this. What we can do, however, is look under the covers at why CEO rewards may be so high: and, as you might expect, it looks like this is less to do with performance and more to do with psychology.

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The Psychology of Scams

Gullible Brits, Smart Scammers

The UK’s Office of Fair Trading (OFT), an arm of government concerned with stopping consumers being ripped off, has just published a study into The Psychology of Scams looking at why 3.2 million adult Brits manage to lose £3.5 billon ($5.4 billion) to scammers each year. The fact that they’re looking into the psychological reasons that the victims throw their money away, with a view to stopping them from doing so, suggests an enlightened view in the British civil service that hadn’t been previously noticeable.

Some of the results are really interesting. It seems you’re more likely to fall victim to a scam if you think about it or, if you’ve previous knowledge in the area that the scam’s targeting, you’re likely to suffer from overconfidence in your ability to detect a problem. So are we all potential victims?

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Bulletin Boards are Bad for Your Wealth

Buyer Beware of the Boards
 
Lots of us, including me, frequent investment related bulletin boards discussing shares and such stuff. They’re full of like-minded people, offering opinions on various investments. If it’s what you’re into they're fun, informative and can generate lots of useful ideas.

They can also be extremely damaging to your investment returns. Bulletin boards are exactly the wrong way to discover investment information unless you know precisely what you’re doing.

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