madmoney3

Full text @ Had Enough Therapy?

In days of yore, as Merkin testifies, women in certain communities were told to ignore money issues. If they showed an interest in money it had to mean either that that they did not want to be taken care of, or that they were not confident that men could do so.

A woman’s interest in money would have threatened the male role of provider, and would have made her a less attractive mate.

And it is probably true, even at a time when most women work outside the home,that many learn about financial issues only when they are forced to… by divorce, widowhood, or financial crisis…

…Women’s studies belongs to the humanities. They emphasize soft subjects, subjects that involve emotion and art, subjects that stereotypically exist within women’s domains.

Part of the problem is that feminism holds as dogma that reality is constructed out of power relations that seek to exploit women.

But, money is about numbers. And like it or not, numbers are real. They are not a social construct. If you have learned from critical theory and deconstruction that there are no facts, you will never develop a good relationship with money.

The media reports that all mortgage defaults in the U.S. amount to approximately 1.5 or 2% of all outstanding mortgages. That doesn’t sound like much, so why is it a problem?

Banks’ leverage is 30 times – meaning that for every dollar they have, they can loan out $30. Therefore, if a bank uses its full capacity to give out loans, and then just 4% of all oustanding loans default, the bank will be wiped out. (If you have no cash on hand, how can you loan out anything?) The more loans/mortgages are in default, the less the bank can loan out, because it now has less money to leverage against.

And then it goes like this: less cash on hand -> less able to loan out -> less able to make money on the loan interest.

This is a simple explanation for the people like me, with only basic understanding of banks and credit. If I made a mistake here, please correct.

Finding total happiness is the ultimate goal for many people — but should it be? New research suggests that if wealth and success are also at the top of your list, the two goals may be somewhat incompatible.

Diener and his colleagues used data from the World Values Survey, which measures the happiness of respondents on a scale of 1 to 10 (with 10 the happiest). They found that income did indeed increase along with happiness but not at the very top. The 10s earned significantly less than the 8s and the 9s. The latter were also more likely to have gone to college, have engaged in the political process and have saved money.

Why is it better to be happy but not euphoric? Diener’s take is that happy – but not too happy – people are strivers. They’re interested in making the sorts of changes necessary to get ahead in life, including engaging in competition (not always a happy pursuit), obtaining more education and changing their behavior when what they’re doing now isn’t working. The 10s, on the other hand, are too complacent to adjust enough…

Extreme optimists (those who overestimated their own life spans by 20 years or more), additional research shows, also behaved in other ways that weren’t good for their future. They accumulated debt and didn’t save. Moderate optimists, recognizing that their luck could run out, saved more than the extreme optimists did.

Source: CNN

In other words, happiness makes you complacent and lazy.

I’m reading Your Money and Your Brain (How the new science of neuroeconomics can help make you rich) by Jason Zweig.

I’ve been a financial journalist since 1987, and nothing I’ve ever learned about investing has excited me more than the spectacular findings emerging from the study of “neuroeconomics”. Thanks to this newborn field “a hybrid of neuroscience, economics, and psychology” we can begin to understand what drives investing behavior not only on the theoretical or practical level, but as a basic biological function. These flashes of fundamental insight will enable you to see as never before what makes you tick as an investor. – Jason Zweig

In the very first chapter, Mr. Zweig writes about Harry M. Markowitz, winner of Nobel Prize in economics. He won the prize largely for the mathematical breakthrough that he had been incapable of applying to his own investing portfolio. Really, it’s by far easier to teach, than to do. No offense to teachers.

A few other interesting observations:

  • People who keep up with the news about their stocks earn lower returns than those who pay almost no attention.
  • “Professional” investors, on average, do not outperform “amateurs”.
  • The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.
  • After two repititions of a stimulus – like, say, a stock price that goes up one penny twice in a row – the human brain automatically, unconsciously, and uncontrollably expects a third repetions.
  • Expecting both good and bad events is often more intense than experiencing them.

This is just the beginning, and I’m already starting to understand, that to actively trade stocks successfully, one has to fight a lot of subconscious responses deep in the brain. Essentially, the task is to fight our human nature.

That’s what a lot of people like about Technical Analysis (TA). It removes all or most of emotions out of making decisions. I’m finding TA extremely useful. I’m much less emotional in my trading, but still impatient.

I’m concentrating on learning more about myself and about TA. Both help control impulses in trading and investing.

Will return to posting my P&L numbers at the end of May. It’s been a bit over a year since I started trading and investing, so a summary might be interesting. Oh, the suspense! Am I winning or losing?