MarketPsych by Richard L. Peterson & Murtha Frank F

Author:Richard L. Peterson & Murtha, Frank F.
Language: eng
Format: epub
Publisher: Wiley
Published: 2010-07-25T16:00:00+00:00

Values Leakage

Values that serve us well in the workplace, in social life, or in health matters are often unhelpful when misplaced as financial values. Humans have a tremendous capacity to learn and adopt new ways of thinking and behaving more effectively. The problem is, investing well is too often counterintuitive.

Most often confusion about values arises because we “mis-attribute” values that apply to social relationships to financial transactions. Bob couldn’t buy at market price not only because he was frugal, but because he didn’t want to enrich human “cheaters.” “Why should I cave in and pay an inflated price so that some other person can take advantage of the system?” he thought. It offended not only his wallet, but his sense of fairness. He indulged this sense of what’s fair, but it came at a large financial cost to himself. Which values of yours might be costing you? More importantly, is that a trade-off you are willing to make?

A study of the traits of the best stock analysts in the late 1960s identified some surprising characteristics as being of value: higher levels of hostility, feeling apart from others, and taking an outsider’s perspective. These are not traits that will make a person a role-model in the community. Nonetheless, these traits seem to aid investment analysis by contributing toward skepticism (of market trends, overconfident executives, and overhyped companies).

All of these characteristics share (1) a strong sense of self, and (2) a comfort level with being different. In other words, successful stock analysts have a well-developed investing identity, and with it a willingness to break from the herd when it is headed over a cliff. It is important to note that these traits can be applied situationally as long as we’re aware of the different “hats” we need to wear in social relationships as opposed to when we’re doing financial analysis.

Table 5.1 will help you understand where your global values might be leading you astray when they emerge during an investment decision-making process.

The gist of this table is that investing is not like daily life—just because we feel good or bad about something: we like it, it is performing well, it is cheap, or it is glamorous—does not mean we should invest our money in it. The counterintuitive nature of investing well is one of the most difficult lessons to internalize and implement.

Table 5.1 Understanding the Common Financial Values

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