A look at recent headlines reveals just how much our investment performance (think retirement security) depends on psychology:
— Thomson Reuters expands market psychology indices.
— Can philosophy help predict a turn in the markets?
— Tools of behavioral finance can complement regulators.
Old timers recall the days when investment decisions were based on presumably sound principles of securities and financial analyses back when the federal Glass-Steagall Act separated commercial banking from investment banking. In those storied times, the sources and uses of a given corporation’s revenues and profits, its industry’s performance and outlook, and macro-economic trends were among fact-based data used to make seemingly rational decisions. And the more regulated market was perceived to be pretty efficient and fair.
Those principals of financial management and regulations arose from the 1929 Market Crash and earlier catastrophes. Several classic scams and bubbles were immortalized in “Memoirs of Extraordinary Popular Delusions and the Madness of Crowds,” published in London in 1841 by Charles MacKay, LL.D. MacKay, a Scottish journalist and scholar, informed the 19th century world in detail of such financial follies as the British “South Sea Bubble,” Dutch “Tulipomania,” and the lesser-known French “Mississippi Scheme.”
“Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper,” MacKay wrote in his Preface. “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one-by- one.”
Today, respectable news and investment management companies like Thomson Reuters and Allianz Global Investors have psychological indices and behavioral centers. They are far from alone.
Indeed, the American Psychological Association’s journal has reported on a promising new field for two members. Frank Murtha, a children’s therapist who had worked with emotionally disturbed youngsters, and psychiatrist Richard Peterson, M.D., an expert on gambling, formed a consulting firm (MarketPysch) when they realized “financial advisers were an underserved market that could use the principles of psychology.”
This investment psycho-mania (with apologies to Charles MacKay) is leading two academicians into a new world where psychology, psychic phenomena and physics converge. A recent Street.Com article, for instance, reported on Northwestern University and University of Colorado researchers seeking funds for a “rather Freudian” study based in-part on “precognitive dreaming and remote viewing of images.”
In their proposal, these two PhDs say:
“Thirty years of data suggest that non-conscious processing correlates with future events. We have used this idea to make money on the stock market . . . We are interested in shedding light on the underlying mechanisms and opening the scientific conversation about the psychology and physics of time.”
It’s hard to believe. What’s even harder to believe is that there is nothing new about using “remote viewing” and “non-conscious processing” methods to break through Einstein’s space-time barrier. Russian and American intelligence units have actually used these methods to spy on each other and for other purposes. A Stanford Research Institute physicist founded the CIA’s “psychic spy” operation back in the 1970s.
What is new is the notion that these still virtually unexplainable psychic skills can be used to predict future stock market performance.
Do these powers exist? No lesser authorities than President Jimmy Carter and Scotland Yard have described using psychics on national security and criminal investigations.
In 1995, CNN reported that former President Jimmy Carter publicly said the CIA had used a psychicwoman to locate a “special plane” that had crashed in Africa. Satellites had been unable to find it. He said the woman “went into a trance and gave some latitude and longitude figures. We focused our satellite cameras on that point and the plane was there.”
Scotland Yard has reportedly successfully used the abilities of Nella Jones, a psychic, to help solve murders.
“Nella gave invaluable assistance on a number of murders,” explained Detective Chief Inspector Arnie Cooke in a 2008 Daily Mail newspaper interview. “Her evidence was not the type you can put before a jury. But, senior investigating officers have got to take people like her on board and accept what they are saying.”
Will psychic advisers be retained by investment bankers to give them a new advantage over the investing public and their own customers? Are they already doing so? And, just what will the SEC make of market performance projections based on “remote viewing” sessions?
These and other questions remain to be answered in the future. As to the recent past and present, there is truth in the words of that sober-minded 19th century Scotsman Charles MacKay:
“Men were no longer satisfied with the slow but sure profits of cautious industry. The hope of boundless wealth for the morrow made them heedless and extravagant for to-day.”