Green Time

Monday, June 25, 2012

Robbie Burns: To A Mouse

A sculpture of a mouse in the garden of the Robert Burns Birthplace Museum, Alloway
by: Robert Burns (1759-1796)
      EE, sleekit, cowrin, tim'rous beastie,
      Oh, what a panic's in thy breastie!
      Thou need na start awa sae hasty,
      Wi' bickering brattle!
      I was be laith to rin an' chase thee,
      Wi' murd'ring pattle!
      I'm truly sorry man's dominion
      Has broken Nature's social union,
      An' justifies that ill opinion
      Which makes thee startle
      At me, thy poor, earth-born companion
      An' fellow-mortal!
      I doubt na, whyles, but thou may thieve;
      What then? poor beastie, thou maun live!
      A daimen-icker in a thrave
      'S a sma' request;
      I'll get a blessin wi' the lave,
      And never miss't!
      Thy wee-bit housie, too, in ruin!
      Its silly wa's the win's are strewin!
      An' naething, now, to big a new ane,
      O' foggage green!
      An' bleak December's winds ensuin,
      Baith snell an' keen!
      Thou saw the fields laid bare an' waste,
      An' weary winter comin fast,
      An' cozie here, beneath the blast,
      Thou thought to dwell,
      Till crash! the cruel coulter past
      Out thro' thy cell.
      That wee bit heap o' leaves an stibble,
      Has cost thee mony a weary nibble!
      Now thou's turn'd out, for a' thy trouble,
      But house or hald,
      To thole the winter's sleety dribble,
      An' cranreuch cauld!
      But, Mousie, thou art no thy lane,
      In proving foresight may be vain:
      The best-laid schemes o' mice an' men
      Gang aft a-gley,
      An' lea'e us nought but grief an' pain,
      For promis'd joy!
      Still thou art blest, compared wi' me!
      The present only toucheth thee:
      But och! I backward cast my e'e,
      On prospects drear!
      An' forward, tho' I cannot see,
      I guess an' fear!
"To a Mouse" is reprinted from English Poems. Ed. Edward Chauncey Baldwin & Harry G. Paul. New York: American Book Company, 1908.


 Portrait of Robert Burns 
 Robert Burns by Alexander Nasmyth
(By permission of the National Galleries of Scotland) 

Sunday, June 3, 2012

Neuroscience and Financial Markets

This discussion leaves many questions to be answered by investors, like - 

Do you want money managers gambling with your pension money?  Emotional stability is one hallmark of a good investor according to Warren Buffett and John Coates is suggesting that the financial markets are dominated by bipolar emotions exaggerating moves in both up and down movements.  Markets may eventually revert to the mean but do you have the constitution to stay the course amidst the volatility?

CBC Books - The high stakes of Wall Street

John Coates  explains his ideas: 

"The Hour Between Dog and Wolf: John Coates Research in Neuroscience" suggests that the physical reactions on trading floors are similar to war zones or elite sports where the pressure to perform and survive is great. 

In such situations, the Visceral trumps the Rational.

The man behind that view spent years on the trading floor for the big players on Wall St. before studying neuroscience.

The trading floor looks like an adrenaline-fuelled battle zone and the truth isn't far off. 

Research in neuroscience suggests that being a part of this whirlwind world of buying and selling leads to physiological reactions akin to fighting in a war zone or playing in the NBA playoffs. The pressure to perform is huge and the instinct to survive is powerful.

One man who knows much about this is John Coates, author of The Hour Between Dog and Wolf.

Coates was a Wall Street stock trader for years,  at  firms like Goldman Sachs and Deutsche Bank during the boom of the 1990s.

 Seeing the behaviour of other traders,  he observed hey seemed to operate contrary to how economics is supposed to work.

"Well, I think everybody was seeing it, but I guess I was particularly struck by how anomalous the behaviour was from the point of view of economics," Coates said.

"Traders on the floor had become delusional and euphoric ... They were putting on trades in ever-increasing size with worse and worse risk-reward trade-offs. And I thought this was odd because they hadn't been this way before the bubble, and after it crashed or popped, they weren't like that any more, in fact they were like revelers with a hangover. And they couldn't believe that they had just blown five years' worth of profits on a handful of stupid trades."

There are some chemicals that your body producing that was basically having this narcotic effect on you. And that got Coates to think about the influence of the body on financial risk-taking.

We'd like to think that financial trading is based on solid reasoning and rationality, but human beings are not robots, even if some purport to operate that way.

Emotions get in the way. Fear can sink in. So can the natural instinct to fight. 

Through studying neuroscience, Coates explored his theory about what he was seeing on the trading floor: that physiological changes happening within traders as they gain and lose vast amounts of money may be driving the instability of the financial markets.

"The trouble is right now we've got an unstable biology coupled with risk-management practices that expand risk limits during the bull markets and contract them during the bear, and a bonus scheme that rewards high-variance trading."

Coates concludes the biology increases volatility by exaggerating movements on markets whether up or down because the reward system of bonuses encourages high risk trading;  flight or fight drives behavior when markets start crumbling and adrenaline , testosterone, and pleasure seeking kicks in when market start running to the upside.... more bonuses and more high risk taking behavior.  Egos expand brashness and the "greater fool" theory takes precedence over value investing.

Coates suggests: "I think also if there is the biological contributor to this instability, then a way of dampening it is to have more women and older men managing money because they have very different biologies from young men."

First aired on The Current (28/05/12)