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  • The Invention Of Retirement

    In 1890, Haber writes, only a quarter of aged workers called themselves “permanently nonemployed.” Those who were often faced harsh conditions. Many in industrialized cities had no family resources to depend on, and, at best, might hope for help from a charitable group or old age home. To protect older workers from this fate, employers… Read more…

    The Invention Of Retirement
  • The Hidden Danger of Being Risk-Averse

    People are generally not all that happy about risk. As Nobel Prize-winning psychologist Daniel Kahneman has written, “For most people, the fear of losing $100 is more intense than the hope of gaining $150. [Amos Tversky and I] concluded from many such observations that ‘losses loom larger than gains’ and that people are loss averse.”… Read more…

    The Hidden Danger of Being Risk-Averse
  • Lessons From Losing Big

    What I Learned Losing a Million Dollars is easily one of the most underrated investment books I’ve come across. The book was actually first published in the early 1990s but re-released a few years ago. It tells the story of Jim Paul, a former futures trader on the Chicago Mercantile Exchange who made a sizeable… Read more…

    Lessons From Losing Big
  • Well….Im Confused

    So I was sitting in the car listening to the radio and all the chatter was about the current crisis in the diary industry which people seem to be suggesting is the result of corporate bastardry on behalf of groups like Fonterra. At the outset I have to state that I know nothing about primary… Read more…

    Well….Im Confused

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The Invention Of Retirement

In 1890, Haber writes, only a quarter of aged workers called themselves “permanently nonemployed.” Those who were often faced harsh conditions. Many in industrialized cities had no family resources to depend on, and, at best, might hope for help from a charitable group or old age home. To protect older workers from this fate, employers and unions sometimes set aside less demanding jobs for them.

In this same era, employers like railroads, factories, and mining companies were under rising pressure from labor unions. To pacify workers, they began adopting benefit programs, including old age pensions.

Pensions were a type of employee benefit that had obvious advantages for employers. Because workers generally received a pension only if they’d been with the same company for decades, they helped employers retain workers. And, because pensions wouldn’t be paid if a worker was fired before retirement, they also provided an incentive for employees to stay on the good side of management.

More here – JSTOR Daily

The Hidden Danger of Being Risk-Averse

People are generally not all that happy about risk. As Nobel Prize-winning psychologist Daniel Kahneman has written, “For most people, the fear of losing $100 is more intense than the hope of gaining $150. [Amos Tversky and I] concluded from many such observations that ‘losses loom larger than gains’ and that people are loss averse.”

While the phenomenon of loss aversion has been well-documented, it’s worth noting that Kahneman himself refers to “most people” — not all — when describing its prevalence. According to 20 years of research conducted by Columbia University’s Tory Higgins, it might be more accurate to say that some of us are particularly risk-averse, not because we are neurotic, paranoid, or even lacking in self-confidence, but because we tend to see our goals as opportunities to maintain the status quo and keep things running smoothly. Higgins calls this a prevention focus, associated with a robust aversion to being wide-eyed and optimistic, making mistakes, and taking chances. The rest of us are promotion-focused, see our goals as opportunities to make progress and end up better off, and are not particularly averse to risky choices when they hold the potential for rich gains.

Studies from Columbia’s Motivation Science Center have shown that prevention-focused people work more slowly and deliberately, seek reliability over “coolness” or luxury in products, and prefer conservative investments to higher-yielding but less certain ones. Further research conducted by Harvard’s Francesca Gino and Joshua Margolis, indicates that prevention-focused people are more likely than the promotion-focused to behave ethically and honestly — not because they are more ethical per se, but because they fear that rule-breaking will land them in hot water.

They even drive differently. In one study, researchers at the University of Groningen in the Netherlands equipped customers of a Dutch insurance company with a GPS that was used to monitor their driving habits. The prevention-focused were, not surprisingly, less likely to speed than their promotion-focused fellow drivers. A second study showed that they also needed larger gaps between cars in order to feel comfortable merging.

More here – Harvard Business Review

Lessons From Losing Big

What I Learned Losing a Million Dollars is easily one of the most underrated investment books I’ve come across. The book was actually first published in the early 1990s but re-released a few years ago. It tells the story of Jim Paul, a former futures trader on the Chicago Mercantile Exchange who made a sizeable amount of money at a young age, but lost it all following a series of bad breaks and poor choices.

It’s one of the most honest investment books I’ve ever read. It deals with hubris, overconfidence, luck and the multitude of psychological factors we’re all forced to deal with when trying to make rational decisions.

I’m a huge fan of the mindset of process over outcomes and this book is full of useful nuggets of wisdom on this subject. I go back through my highlights from this book on regular basis. What follows are some of my favorites.

Why people make poor decisions:

People lose money in the markets either because of errors in their analysis or because of psychological factors that prevent the application of the analysis.

Experience can be overrated:

Experience is the worst teacher. It gives the test before giving the lesson.

More here – A Wealth Of Common Sense

Well….Im Confused

So I was sitting in the car listening to the radio and all the chatter was about the current crisis in the diary industry which people seem to be suggesting is the result of corporate bastardry on behalf of groups like Fonterra. At the outset I have to state that I know nothing about primary production other than it looks hard and uncertain but then no more uncertain working in manufacturing in Australia. .

I know nothing about the current situation but I have always thought if you dont understand a problem directly try and look for something you are familiar with and work sideways. In doing so you might be able to lift the veil of your own confusion. So, I thought milk is a commodity maybe it is traded somewhere and that would give me some data upon which to start to make sense of what was happening. Part of everyone’s shtick was that the current situation could not be foreseen and I wondered how that could be. A bit of a look around found the chart below which is the CME Class 111 milk – it is undoubtedly not a match to what the local product is but it tells an interesting story.

BARCHART

To my untrained eye it looks as if this commodity has been stuffed since late 2014.  However, the usual caveats apply when dealing with analogues so I though I might be able to find some sort of global index that would give me an idea of the really big picture and as always Google obliged with the Global Dairy Trade Chart Focus March 2015

GDT

It looks to me as if the entire global dairy industry has been struggling since 2014. Therefore the proposition that these events could not be foreseen is somewhat disingenuous and is more reflective of incompetence than anything else. Then I remembered that the last person to ask about what was happening to prices in their industry was executives within that industry. The influence of Dunning-Kruger runs deep with Australian management and how anyone in a decision making position could offer up the reasoning that the current collapse in prices blind sided everyone is beyond me.

This then raises the question of whether I have cleared up my own confusion and the answer is not really.  If anyone knows anything let me know.

Behavioural Finance – An Introspection Of Investor Psychology

Dow Component Changes

I am still beavering away looking at changes in the S&P/ASX200 over time – it is a time consuming exercise as with all things Australian quality data is hard to come by. Both Standard and Poors and the ASX are friggen hopeless when it comes to providing useful hard core data for traders. However, the difference between the original S&P/ASX 200 and the current version is staggering. In the meantime I decided to have a quick look at the Dow which has proved to be much easier courtesy of Wikipedia

Capture

The cells highlighted in yellow represent companies that have held their spot over the past two decades. As you can see there has been significant turnover. And if you were curious about the weighting of each stock with the Dow these two neat little charts from IndexArb will help you.

weight

Source – IndexArb

Time For Some Beauty

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