I’ve gotten into something of a pickle with this latest trading position. Just a few weeks ago is seemed that all the operational and economic stars were aligned to send this stock into the stratosphere, but things did not work out like they were supposed to. It is not a complete disaster, but there were numerous little ‘misses’ on the way. So, although the broader equity market is reaching a 52-week high, my stock is closer to its 52-week low, and I am losing money.
How tiny indiscretions can grow into large sins, without provoking any feelings of culpability or shame, is the subject of my final article on corporate cultural change and behavioural ethics. The gradual erosion of moral standards often begins with a very small act, like taking a pen home from the office. It continues with a padded travel expense claim and then an incomplete income tax declaration. From there, insurance fraud is just a short step away. And if that doesn’t weigh too heavily on one’s moral self-perception, why beat oneself up over the occasional ‘bonus’ of an escort girl, or an evening of dwarf-throwing? It is not as if it is illegal or anything.
After the questionable ac, it is a simple matter to justify and relativize it: the loss of a pen will not blow a hole in the company’s balance sheet; a little extra from the expenses claim is merely compensation for all of that unpaid overtime; and isn’t it the duty of all right-minded citizens to hold back some taxes from a wasteful and corrupt government? No, one does not have to be a bad or dishonest person to engage in unethical behaviour, one simply needs a good enough reason to deviate from the wider social norms. Sometimes the prevalence of a less demanding company or group norm can absolve individuals of any feelings of deviancy altogether.
One does not need to be schizophrenic to be able to hold apparently contradictory attitudes to ethical behaviour. This is because we do not evaluate ‘good’ or ‘bad’ in absolute terms, but in relative terms. This means that people perceive ethical standards in relation to a reference point: we are honourable if we are better than others, and vice versa. It also means that depending on the reference point in any given situation, the absolute morality of a given individual can vary widely. The same person who gives generously to support a charitable initiative in a developing country could also cheat on her taxes. The same father who treats his children with respect and understanding at home could still dismiss coldly a subordinate back in the office.
This perception of morality is also subject to diminishing marginal returns on the positive as well as on the negative side. It is the first act of shoplifting that weighs the most heavily on the conscience; each subsequent act burdens our self-image to a lesser degree. Similarly, the sense of a satisfaction that comes from helping out at the soup kitchen for the homeless shrinks with each act of selflessness. Whether good or bad, repeated behaviour ultimately becomes the new personal norm.
Ethics become the subject of discussion primarily when losses occur, i.e., when somebody’s behaviour is shown to be below the standard desired by the social norm. However to avoid such situations it is important to recognise that the simple presence of rules and regulations is not sufficient to ensure compliance. We must also recognise that there is no absolute morality and no absolutely ethical people. Situational factors, like local reference points and norms, as well as the simple passage of time, have the power to corrupt us all.
Occupy Wall Street’s (OWS) idea of using charitable donations to buy up distressed consumer debt, and then simply forgiving it, sounds very appealing. I am very much in favour of pardoning debt that everyone knows can never be repaid. This allows overly-indebted people to get on with their lives, hopefully in a more productive way. One of those ways, OWS hopes, is eventually to make their own financial contribution to the project, thereby ‘paying it forward’. The impact of a test project was impressive: according to one of the organisers, OWS was able to buy $14,000 of distressed debt with an investment of just $500.
I was so impressed by a lecture on the fascinating subject of ‘Economics and Ethics’ by Julian Nida-Rümelin, a former German culture minister and currently professor of philosophy and political theory at the Ludwig-Maximillian University in Munich, I literally ran out and bought the book. Nida-Rümelin’s newest publication, entitled The Optimisation Trap, deals with the philosophy of a human economy.
“If only days like this could last forever,” sang Die Toten Hosen. These are perhaps not the kind of romantic sentiments one might expect from a punk band, but they are certainly ones that almost all of us can identify with. Every now and again, those special moments in life come alone when we think how great it would be if we could only stop time.
“What are they going to force us to do next – eat broccoli?” raged one American TV commentator about the healthcare reform known as Obamacare. He considered it an impingement on his personal liberty to be obliged by law to buy health insurance. The decision by the US Supreme Court last Thursday to uphold the plan as constitutional has obviously ignited a wave a discontent across many parts of the country, not least in the campaign headquarters of Republican presidential candidate, Mitt Romney. He has already promised to repeal the law if he is elected in order to give the American people their freedom back.
The conviction of Rajat Gupta, (the former head of McKinsey and ex-board member of Goldman Sachs and Procter & Gamble) is being seen as a milestone in the long crackdown on insider trading by US prosecutors. Gupta was found guilty even though he did not personally benefit from the crime and the conviction was secured largely on the basis of circumstantial evidence. By setting the bar lower than the usual standard for conviction, the prosecutors hope to establish an effective deterrent for would-be insider traders. It could be working: the UK’s financial market regulator, the FSA, has revealed that there has been a dramatic decrease in unusual trading ahead of the London-listed M&As. Among other things, it attributes the decline to the much-debated Rajat Gupta trial.
The Bloomberg anchor-woman was to blame. She started it. Right at the outset of a TV interview with a Global Head of Economic Strategy, she decided to limit the scope of the discussion about the world’s ills to one region: Europe. She then further sub-divided the Europe issue into a simple question: “Will Greece exit the eurozone or not?” It was almost as if this binary yardstick could adequately measure the goodness or otherwise of future outcomes for investors or for viewers in general.
That Til Schweiger, the German actor and filmmaker of Hollywood renown, is to take over the role of detective in the German cult crime series ‘Tatort’ later this year is already big headline. But not big enough, it seems. Schweiger is causing an even bigger stir among fans of the long-running series – a kind of CSI: Crime Scene Investigation set in various parts of Germany, Austria and Switzerland – by suggesting that it scrap its title sequence. After 40 years without any change, Schweiger reckons the images and music are “outdated”
The discovery that some UK households keep more than £1,000 in cash at home – often because they distrust banks – is causing some concern for the Financial Services Compensation Scheme (FSCS). The body, which protects consumers from losses when financial institutions go bust, is worried because cash held in British homes, some £5.6bn in total, is not protected by the scheme. In many cases, it may not be covered by domestic insurance policies either. The FSCS also believes the distrust of banks, expressed by some 13 percent of households in their research, is unwarranted.
This time tomorrow I will be embarking on a flight to an incredible Indian holiday. I love to travel and I have been looking forward to this trip for ages. As usual, I have already spent far more money than I originally planned. Although India is a relatively inexpensive country, I just had to choose the Andamans – a small group of islands in the Indian Ocean – as my holiday destination. There are fabulous hotels there, and waterfall showers. They even offer the possibility of snorkelling with elephants! Of course, this activity comes at a juicy price; for the same money, I could buy a very nice pair of shoes, and be able to wear them for much longer than the single hour I will ultimately spend plunging with the pachyderm.
“There was a period of remorse and apology for banks; that period needs to be over,” implored Barclay’s boss Bob Diamond before a parliamentary committee in January 2011. Well nobody seems to have been listening because, a year later, banker-bashing persists. Mr Diamond seems determined to remain the lightning rod for public fury but he is far from alone. In the last few weeks Stephen Hester, the head of the state-owned Royal Bank of Scotland has been publicly badgered into giving up a one-million-pound bonus. The figure seems large, but it is modest by bankers’ standards. Also RBS’s former CEO, Fred Goodwin, the man who presided over the bank’s collapse, was stripped of his knighthood. To put that into context, the last person to be so unceremoniously defrocked was the Zimbabwean dictator Robert Mugabe.
Have you lied yet today? According to some studies we lie about three times in every ten minutes of conversation[i], which means that unless you just woke up you have already let a few lies slip. Perhaps you told your neighbour how good she looks this morning, even if that wasn’t strictly the case.
At a church in Frankfurt I recently had the opportunity to listen to a debate between Professor Paul Kirchhof, a former Federal Constitutional Court judge, and the former chairman of the Evangelical Church in Germany (EKD), Professor Wolfgang Huber. The topic was the gradual destruction of church and state and the eventual end of institutions. Almost inevitably, the conversation turned to the ‘crisis’ – nowadays, an empty catchphrase for all social problems.
A personal shopping advisor – now that is what I call luxury. No need to battle with the masses in the busy boutiques and department stores. Instead, a personal shopping advisor identifies the most stylish, exclusive, and typically the most expensive items from the collection for the store’s most demanding guests and presents in a private showroom, preferably over a flute of rosé champagne.
I have been repeatedly asked over the last few weeks what could be the worst-case scenario for the eurozone debt crisis. It is not a question I like to answer; there are large number of possible paths the crisis could take, which means that there is no single worst-case, but many. And this ignores the effect of the government policy responses those paths would undoubtedly encounter along the way. I do not attach any meaningful probability to it, but when one thinks about any worst-case, it is easy to conjure up images of a total collapse of the economic system as we know it – money, banks, financial markets, growth-based priorities – and some kind of new beginning.
“Most of the people in this room have it in them to become a rogue trader.” This is how I challenged a large group of institutional investors at one of my recent behavioural finance seminars. The suggestion raised numerous titters, but there was not a single word of opposition. They understood that loss-aversion is a powerful human motive and, in addition, that the passage of time dulls a person’s perception of the enormity of the damage.
A little while ago, I had the opportunity to see the obscurely-titled movie, ‘Margin Call’. Those familiar with the expression will not be surprised to discover that the story revolves around a US investment bank. The year was 2008, just ahead of the Lehman collapse. The tale begins when analyst Eric Dale finds himself victim of one of the typical rounds of employee layoffs.
The latest happiness statistics from Greece show that, since 2007, the proportion of citizens who rate themselves as ‘unhappy’ has more than tripled. Currently, a quarter of all Greeks describe themselves as ‘suffering’ and do not expect any significant improvement in the coming months. According to the same Gallup poll, only 16 percent are happy with their lives, a figure that puts Greece very close to the bottom of the European happiness league table. Only the citizens of Hungary and Bulgaria are glummer.
I was recently reminded of the Parable of the Prodigal Son, from the Gospel of Luke. That’s the one where the younger of two boys asks his father for his portion of the inheritance and then goes on to squander it in wild adventures abroad. Later, penniless and repentant, the profligate begs his father to take him back in as a hired-hand.
I was a guest at yet another wedding last Friday – the third in as many weeks. Wedding fever is everywhere around me, so much so that I feel like a deviant for not having already had a wedding dress fitted or for not having browsed any brides’ magazines. How many times in these three weeks have my boyfriend and I had to suffer someone coming up and asking: ‘Do I hear wedding bells for you two?’
We make investments because we believe they will bring profits, not losses. Just thinking about the prospect of a loss is already pretty unpleasant. This is because human beings have an intense aversion to losses, and this is why decisions made after losses have been incurred are so prone to bias. To start with, investors tend to believe, with a little time and patience, that the loss can be made good.
I’ve heard Dominique Strauss-Kahn variously described as a philanderer, a womaniser, a seducer or, more euphemistically, as someone ‘with a reputation’. This had me wondering: what is a reputation? It appears to be nothing more than a norm, a reference point that is associated with an individual. One can imagine that a reference point will ultimately crystallise around the typical behaviour pattern of the individual. Hence ‘a reputation’ could be thought of as some rough average of the behaviour an individual exposes observers to over time. Remember, all reference points only exist in the mind of the observer; we cannot therefore perceive our own reputation, only other people’s.
I am always astounded by the number of investors who operate in the financial markets without loss limits. Of course, planning for a stop-loss in one’s strategy means admitting the prospect of a loss at the outset, and investors are understandably reluctant to do so.
A little over a month ago the Fukushima catastrophe was on round-the-clock television and Geiger counters sold out in Germany and in California. The whole world seemed panicked, fearing that the worst was still to come. Meanwhile the situation in Japan hasn’t changed all that much, but one would have to look long and hard to find any current news on the disaster. For instance, most of the world never even heard that another atomic power plant leak was reported in Tsuruga, some 360 kilometres away from Fukushima, at the beginning of May.
‘Hope springs eternal’, they usually say when you’re standing with your back against the wall. In truth however, this well-meant observation describes a tendency – hoping endlessly for an exit from a miserable situation – that can be counterproductive and even debilitating. Studies show that patients manage to do better when they feel certain about health and sickness.
Had someone informed Tokyo’s residents on the day of the earthquake and tsunami that, in less than two-weeks, their city would be engulfed in a cloud of fallout, their water-treatment plants would be compromised, and their food supplies would soon be contaminated by radioactivity, it’s possible that we would have witnessed the largest mass exodus in the history of mankind. Yet, although all of these things have subsequently taken place, there has been no evidence of any mass departure.
The Fukushima disaster was upgraded to Level 5 today, in other words, a ‘nuclear accident with wider consequences’. The news sent me scurrying to dig up an e-mail I received on Monday morning from InTrade, the spread-betting website. They had just opened a betting market on the Japanese accident, and were already quoting prices for the probability of further explosions as well as the probabilities of future upgrades to Levels 5, 6 and 7.
Shockwaves from Japan reached Western Europe this weekend – not the earthquake, but the fear of an accident at a nuclear reactor closer to home. Demonstrations took place in France, calling for the government to review its energy policy. With 58, France has even more nuclear reactors than Japan, for half the population.
Last month I recounted the tale of a friend who had decided to move his family to the suburbs because his flat in town had become too small. He and his wife bought a beautiful cottage in the country, far away from the hustle and bustle of the city. Of course, the price of living in the suburbs carries several little sacrifices that aren’t written into the cost of the home