If you believe that major market moves happen in New York, then watch the weather there. I’ve paid attention to that on occasion, mainly in dark winter storms but it’s only useful for daytrading.

Wouldn’t this mean that in sunnier climates, say in California, people invest more conservatively?

Weather variables, and sunshine in particular, are found to be strongly correlated with financial variables. I consider self-reported happiness as a channel through which sunshine affects financial variables. I examine the influence of happiness on risk-taking behavior by instrumenting individual happiness with regional sunshine, and I find that happy people appear to be more risk-averse in financial decisions, and accordingly choose safer investments.

Happy people take more time for making decisions and have more self-control. Happy people also expect to live longer and accordingly seem more concerned about the future than the present, and expect less in inflation.

Source: “Weather and Financial Risk-Taking: Is Happiness the Channel?” from the German Socio-Economic Panel Study on Economic Research, August, 2009

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In short – handling money (compared with handling paper) reduces stress from loneliness, as well as physical pain from hot water. Somehow it makes a lot of sense, but also seems crazy.

The threshold must be different for everyone, but as the saying goes “everyone has a price”.

In ‘The symbolic power of money: reminders of money alter social distress and physical pain’ published in the journal Psychological Science, Xinyue Zhou, Kathleen Vohs and Roy Baumeister explored how money could reduce a person’s feeling of pain and also negate their need for social popularity.

Harriet de Wit, Faculty Member for f1000 Medicine, said: “This research extends our understanding of relationships between social pain and physical pain, and remarkably, shows how acquired symbolic value of money, perhaps because of associations with power or control, can influence responses to both emotional and physical pain.”

She also noted: “These findings have great importance for a social system such as ours that is characterized by wide disparities in financial wellbeing.”

Zhou, Vohs and Baumeister determined that interpersonal rejection and physical pain caused desire for money to increase. They said: “Money can possibly substitute for social acceptance in conferring the ability to obtain benefits from the social system. Moreover, past work has suggested that responses to physical pain and social distress share common underlying mechanisms.”

“Handling money (compared with handling paper) reduced distress over social exclusion and diminished the physical pain of immersion in hot water. Being reminded of having spent money, however, intensified both social distress and physical pain,” the authors said.

More information: The full text of the evaluation of “The Symbolic Power of Money: Reminders of Money Alter Social Distress and Physical Pain” is available free for 90 days at http://www.f1000medicine.com/article/r2111rwty080l4q/id/1163818 DOI: 10.1111/j.1467-9280.2009.02353.x

Source: Faculty of 1000: Biology and Medicine

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She lived in a tiny one-bedroom cottage in Lake Forest, Ill.

She bought her clothes at rummage sales, didn’t own a car and worked most of her life as a secretary for a pharmaceutical company.

Yet after her death at age 100, Grace Groner left Lake Forest College a gift of $7 million to be used for scholarships. The money came from three shares of stock she bought — and held on to — in 1935.

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Beth, the secretary, got several stock tips from billionaire station owner Jimmy James and instead of following them, she sold the tips to someone else.

Beth: I don’t understand. All I did was sell someone something I didn’t even own in the first place that wasn’t worth anything.

Jimmy: Like I said, welcome to the world of high finance!

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One day I saw in the Paris Herald a dispatch from New York that Smelters had declared an extra dividend. They had run up the price of the stock and the entire market had come back quite strong. Of course that changed everything for me in Aix. The news simply meant that the bull cliques were still fighting desperately against conditions – against common sense and against common honesty, for they knew what was coming and were resorting to such schemes to put up the market in order to unload stocks before the storm struck them. It is possible they really did not believe the danger was as serious or as close at hand as I thought. The big men of the Street are as prone to be wishful thinkers as the politicians or the plain suckers. I myself can’t work that way. In a speculator such an attitude is fatal. Perhaps a manufacturer of securities or a promoter of new enterprises can afford to indulge in hope-jags.

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“Anyone with average intelligence can learn to trade. This is not rocket science. However, it’s much easier to learn what you should do in trading than to do it. Good systems tend to violate normal human tendencies. Of the people who can learn the basics, only a small percentage will be successful traders.

If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose.”

William Eckhardt, from The New Market Wizards: Conversations with America’s Top Traders

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Still quite a few “Great Depression charts” visitors but a lot fewer than in winter/early spring.

Of course, working with a very small sample here, but I’ll still be watching keywords for sentiment changes.

And here’s what’s going on with the “Great Depression” searches according to Google Trends. Looks like we’re entering a seasonal GD lull

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I’m going to re-print one chapter of this book, in 4 parts to make it easier to read. Written in 1911, it still rings true in today’s market. Human psychology hasn’t changed at all in a hundred years!

As author G.S. Selden says in his original preface, “This book is based upon the belief that the movements of prices on the exchanges are dependent to a very large degree on the mental attitude of the investing and trading public.”
Originally published in 1912.

Part 1 – Part 2 — Part 3 — Part 4

CHAPTER 1
The Speculative Cycle, continued

…In this selling the bull leaders get a good deal of undesirable help from the bears. However wary the bulls may be in concealing their sales, their machinations will be discovered by watchful professionals and shrewd students, and a considerable sprinkling of short sales will be put out within a few points of the top. This is one of the reasons why the long swings in active speculative stocks are smaller in proportion to price than in inactive specialties of a similar character – contrary to the generally received impression. It is rare that any considerable short interest exists in the inactive stocks.

Once the top-heavy load is over-turned, the decline is usually more rapid than the previous advance. The floating supply, now greatly increased, is tossed about from one speculator to another at lower and lower prices. From time to time stocks become temporarily lodged in stubborn hands, so that part of these shorts take fright and cover, causing a sharp upturn; but so long as the load of stocks is still on the market the genial course of prices must be downward.

Until inventors or big speculative capitalists again come into the market, the load of stocks to be carried by ordinary speculative bulls increases almost continually. There is no lessening of the floating supply of stock certificates in the Street, and there is a gradual increase in the short interest; and of course the bulls have to carry these short sales as well as the actual certificates, whether the sale be made by a short or a long. Shorts cover again and again on the sharp breaks, but in most cases they put out their lines again, either higher or lower, as opportunity offers. On the average, the short interest is largest at low prices, though there are likely to be periods during the decline when it will be larger than at the final bottom, where buying by shorts often helps to avert panicky conditions.

The length of this decline, like the extent of the preceding advance, depends on fundamental conditions; for both investors and speculative capitalists will come into the market sooner if all conditions are favorable than they will in a stringent money market or when the future prospects of business are unsatisfactory. As a rule, buyers do not appear in force until a “bargain day” appears. This is when, in its downward course, the heavy load of stocks strikes an area honeycombed with stop loss orders. Floor traders seize the opportunity to put out short lines and a general collapse results.

Her are plenty of stocks to be had cheap, and shrewd operators – large and small, but mostly large or on the way to become so – are busy picking them up. The fixed limits of many investors are also reached by the sharp break, and the stocks they buy disappear, to be seen in the street no more until the next bull turn.

Many shorts cover on such a break, but not all. The sequel to the “bargain day” is a big short interest which has overstayed its market, and a quick rally follows; but when the more urgent shorts get relief, prices sag again and fall into that condition of lethargy from which this consideration of the speculative cycle started.

The movements described are substantially uniform, whether the cycle be one covering a week, a month, or a year. The big cycle includes many intermediate movements, and these movements in turn contain smaller swings. Investors do not participate to any extent in the small swings, but otherwise the forces involved in a three-point turn up and down are substantially the same as those which appear in a thirty-point cycle, though not so easy to identify.

The fact will at once be recognized that the above description is, in essence, a story of human hopes and fears; of mental attitude, on the part of those interested, resulting from their own position in the market, rather than from any deliberate judgement of conditions; of an unwarranted projection by the public imagination of a perceived present into an unknown though not wholly unknowable future.

Laying aside for the present the influence of fundamental conditions on prices, it is our task to trace out both the causes and the effects of these psychological elements in speculation.

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I’m going to re-print one chapter of this book, in 4 parts to make it easier to read. Written in 1911, it still rings true in today’s market. Human psychology hasn’t changed at all in a hundred years!

As author G.S. Selden says in his original preface, “This book is based upon the belief that the movements of prices on the exchanges are dependent to a very large degree on the mental attitude of the investing and trading public.”
Originally published in 1912.

Part 1 — Part 2 – Part 3 – Part 4

CHAPTER 1
The Speculative Cycle, continued

…Those selling at this stage are not, as a rule, the largest holders. The largest holders are usually those whose judgment is sound enough, or whose connections are good enough, so that they have made a good deal of money; and neither a sound judgment nor the best advisers are likely to favor selling so early in the advance, when much larger profits can be secured by simply holding on.

The height to which prices can now be carried depends on the underlying conditions. If money is easy and general business prosperous a prolonged bull movement may result, while strained banking resources or depressed trade will set a definite limit to the possible advance. If conditions are bearish, the driving of the biggest shorts to cover will practically end the rise; but in a genuine bull market the advance will continue until checked by sales of stocks held of investment, which come upon the market only when prices are believed to be unduly high.

In a sense, the market is always a contest between investors and speculators. The real investor, looking chiefly to interest return, buy by no means unwilling to make a profit by buying low and selling high, is ready, perhaps, to buy his favorite stock at a price which will yield him six per cent on his investment, or to sell at a price yielding only four per cent. He wants to buy before prices go up and to sell short before they go down. He would as soon buy at the top of a big rise as at any other time, provided prices are going still higher.

As the market advances, therefore, one investor after another sees his limit reached and his stock sold. Thus the volume of stocks to be carried or tossed from hand to hand by bullish speculators is constantly rolling up like a snowball. On the ordinary intermediate fluctuations, covering five to twenty dollars a share, these sales by investors are small compared with the speculative business. In one hundred shares of a stock selling at 150, the investor has $15,000; but with this sum the speculator can carry ten times that number of share.

The reason why sales by investors are so effective is not because of the actual amount of stock thrown on the market, but because this stock is a permanent load, which will not be got rid of again until prices have suffered a severe decline. What the speculative sells he or some other trader may buy back tomorrow.

The time comes when everybody seems to be buying. Prices become confused. One stock leaps upward in a way to strike terror to the heart of the last surviving short. Another appears almost equally strong, but slips back unobtrusively when nobody is looking, like the frog jumping out of the well in the arithmetic of our boyhood. Still another churns violently in one place, like a side-wheeler stuck on a sandbar.

Then the market gives a sudden lurch downward, as though in danger of spilling out its unwieldy contents. This is hailed as “healthy reaction,” though it is a mystery whom it can be healthy for, unless it is the shorts. Prices recover again, with everybody happy except a few disgruntled bears, who are regarded with contemptuous amusement.

Curiously, however, there seems to be stock enough for all comers, and the few cranks who have time to bother with such things notice that the general average of prices is now rising very slowly, if at all. The largest speculative holders of stocks, finding a market big enough to absorb their sales, are letting go. And there are always stocks enough to around. Our big capitalists are seldom entirely out of stocks. They merely have more stocks when prices are low and fewer when prices are high. Moreover, long before there is any danger of the supply running out, plenty of new issues are created.

When there is a general public interest in the stock market, an immense amount of realizing will often be absorbed within three or four days or a week, after which the deluge; but if speculation is narrow, prices may remain around top figures for weeks or months, while big holdings are fed out, a few hundred shares here and a few hundred there, and even then a balance may be left to be thrown over on the ensuing decline at whatever prices can be obtained. Great speculative leaders are far from infallible. They have often sold out too soon and later have seen the market run way to unexpected heights, or have held on too long and have suffered severe losses before they could get out…

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