Emotional Investment: A Key to a Healthier Economy?

[Loren Booda]

Which promotes a healthier economy - balanced temperaments or maximized profits? They often appear as mutually exclusive. How can they be resolved with each other?

 

[Al68]

Which promotes a healthier economy - balanced temperaments or maximized profits? They often appear as mutually exclusive. How can they be resolved with each other?

What does one have to do with the other?

Contrary to what some believe, the big picture result of companies striving to maximize profits is lower prices, maximum economic growth, more and better jobs, technological advancement, and a higher standard of living for the people.

That balances my temperament just fine.:!)

 

[Loren Booda]

I believe a Nobel prize in economics was awarded in the past generation for the effect of emotions on economics. Panic and complacency come to mind.

 

[BoomBoom]

Contrary to what some believe, the big picture result of companies striving to maximize profits is lower prices, maximum economic growth, more and better jobs, technological advancement, and a higher standard of living for the people.

Unless of course they maximize profits by raising prices, cutting jobs (or sending them overseas), cutting or freezing wage increases, and reducing employee benefits.


But, yeah...9/11 is a perfect example of what a little fear and panic can do to an economy.

 

[russ_watters]

I believe a Nobel prize in economics was awarded in the past generation for the effect of emotions on economics. Panic and complacency come to mind.

That doesn't answer Al68's question. I also don't see how the two are necessarily connected.

 

[russ_watters]

Unless of course they maximize profits by raising prices, cutting jobs (or sending them overseas), cutting or freezing wage increases, and reducing employee benefits.

That's making a choice to sacrafice future profit for present profit. I don't see how that choice is necessarily based on emotion. Just the opposite, a lot of people complain that CEOs do it on purpose, for their own personal profit while in a job for the short term.

 

[WhoWee]

Which promotes a healthier economy - balanced temperaments or maximized profits? They often appear as mutually exclusive. How can they be resolved with each other?

Investor reaction to profit/loss and outside forces doesn't necessarily have anything to do with the soundness of an economy.

Also, unless the price of a share of stock needs to be maintained as acquisition capital or to obtain leverage for debt, it doesn't effect the companies ability to transact business.

 

[Loren Booda]

That doesn't answer Al68's question. I also don't see how the two are necessarily connected.

I had been adding to my original statement. However, behavioral economics (see http://en.wikipedia.org/wiki/Behavioral_economics" ) includes emotion in several aspects of recent markets.

As mentioned earlier, economy includes such affect as panic, greed, complacency, fear - and passion of positive nature as well. The fight between capitalism and communism, e.g. between investment and labor, generated heated emotion.

Which emotion benefits our eventual present profits more, unbridled Laissez-faire aggression or measured caution? (It seems odd that conservatives, for the most part, embrace economic liberalism and reject conservation of resources.)

The Dow was up 131 points yesterday.

 

[WhoWee]

I had been adding to my original statement. However, behavioral economics (see http://en.wikipedia.org/wiki/Behavioral_economics" ) includes emotion in several aspects of recent markets.

As mentioned earlier, economy includes such affect as panic, greed, complacency, fear - and passion of positive nature as well. The fight between capitalism and communism, e.g. between investment and labor, generated heated emotion.

Which emotion benefits our eventual present profits more, unbridled Laissez-faire aggression or measured caution? (It seems odd that conservatives, for the most part, embrace economic liberalism and reject conservation of resources.)

The Dow was up 131 points yesterday.

My intent is to focus rather than oversimplify - please ask yourself one question...do you know ANYONE that doesn't want the stock market to increase?

How would you describe this emotion?

 

[Loren Booda]

My intent is to focus rather than oversimplify - please ask yourself one question...do you know ANYONE that doesn't want the stock market to increase?

How would you describe this emotion?

Flat. What you give is, by itself, basically a statement. I either agree or disagree.

Consider: "The stock market is seriously overinflated - do you know ANYONE that doesn't want the stock market to increase?"

The additional information helps describe a very different emotion - overconfidence.

 

[WhoWee]

Flat. What you give is, by itself, basically a statement. I either agree or disagree.

Consider: "The stock market is seriously overinflated - do you know ANYONE that doesn't want the stock market to increase?"

The additional information helps describe a very different emotion - overconfidence.

Let me try again. After the significant losses in value over the past year- do you know ANYONE that doesn't want the stock market to increase?

Personally, I think the market IS over-inflated and was surprised it didn't bottom out around 5,000 - that is best discussed in another thread.

 

[russ_watters]

Whether the stock market is overinflated or not doesn't really have anything to do with whether the average investor wants it to increase. Of course they want it to increase!

But again, this has nothing whatsoever to do with emotion. I see no point to this thread.

 

[WhoWee]

My point is that FEAR is the dominant emotion that everyone with a 401K has been feeling. Anyone still holding the same positions from a year ago is FEARFUL and OPTIMISTIC, as per recent gains.

However, I'm guessing that if given a chance to sell off at the market high point (2nd chance) they will sell, sell, sell - to avoid making the same mistake again. That emotion would be RELIEF, or maybe SATISFACTION.

 

[Loren Booda]

My point is that FEAR is the dominant emotion that everyone with a 401K has been feeling. Anyone still holding the same positions from a year ago is FEARFUL and OPTIMISTIC, as per recent gains.

However, I'm guessing that if given a chance to sell off at the market high point (2nd chance) they will sell, sell, sell - to avoid making the same mistake again. That emotion would be RELIEF, or maybe SATISFACTION.

Thank you for explaining your position, WhoWee. I tend to agree with you. I intuit that the U.S. stock market has, on the near term average, leveled out for the next year or two - but that is based on complex emotional perception expressed in part as scientific insight.

Quite frankly, I don't want my stock market figures (as opposed to value) to increase too rapidly - that is a likely sign that, from emotional experience, it will do more harm than good. I want investors to finance measured value and attitude into it.

The same goes for the GNP, symbol of productivity. Who is against production? Not the Chinese, for sure. We revel in their mechanistic toys while too many humankind labor in poverty and ingest our pollution. Is there a derivative which accounts for the overwhelming majority who do not share our righteous wealth?

What of the abovementioned behavioral economics (see http://en.wikipedia.org/wiki/Behavioral_economics)? Feelings influence the market, and the market feelings.

 

[WhoWee]

I'm not trying to avoid your question. However, I'd like to return to my earlier post.

"Investor reaction to profit/loss and outside forces doesn't necessarily have anything to do with the soundness of an economy.

Also, unless the price of a share of stock needs to be maintained as acquisition capital or to obtain leverage for debt, it doesn't effect the companies ability to transact business."

I think we need to set aside the stock market volume and trading prices for a moment. The market won't be able to fully rectify 2009 until Spring of 2010.

Instead, we should look at the availability of capital from IPO's, debt offerings, lease financing, direct bank loans, and secondary offerings.

Next, we should look at factory output, inventories, and consumption/sales. Last, the trailing indicators are earnings and employment.

In the short term, factories need orders and the ability to fill those orders - both are credit-dependent.

 

[Loren Booda]

I'm not trying to avoid your question. However, I'd like to return to my earlier post.

"Investor reaction to profit/loss and outside forces doesn't necessarily have anything to do with the soundness of an economy.

Being dependent, the investor reaction will somehow indicate the soundness of its economy.

Next, we should look at factory output, inventories, and consumption/sales. Last, the trailing indicators are earnings and employment.

Those "next" represent the interface between real goods and spending, the former which has realized a Third World industrialization and the latter which has lately been driven too much by high risk credit.

Throughout a healthy economy, earning and employment interdependence thrives. In a recession, initial investments are like belling the cat.

In the short term, factories need orders and the ability to fill those orders - both are credit-dependent.

The question remains: where are credit values lowest (that is, least substantial) and need readjustment by, e.g., consumer education and financing of new industries?

 

[Pythagorean]

Is their such thing as emotional investment? I mean, are emotions even finite?

I think energy and time are finite, but not so sure about emotions.

 

[Al68]

Unless of course they maximize profits by raising prices, cutting jobs (or sending them overseas), cutting or freezing wage increases, and reducing employee benefits.

The only way those things would maximize profits is if they would also be beneficial to the economy in general.

Cutting profitable jobs doesn't maximize profit. Neither does raising prices unless they are below market price. Neither does pay cuts unless they have underproductive employees that are being a burden to society.

Contrary to the common misconceptions spread by power hungry politicians, profits are maximized by being the greatest net benefit to consumers.