Give Me My Sandwich!!

The whole issue picked up this April when Selfridges & Co. claimed that it was going to offer the world’s most expensive sandwich at £85 which is close to Rs 7000 approx. The sandwich is called The McDonald. It is apparently made of rare Wagyu beef which is its key ingredient.
In fact BBC came out and also said that the sandwich apparently had more than 5 advance orders. Just post this a huge word-war started taking place on BBC newsforums with 2 classes of people taunting each other.

More than 245 comments were posted in less than 5 days.

Someone said that he would like a golden brick in the bread if he ought to pay £85. Another said that the filling should be of £20 notes. This probably offended a few who thought that they had a right to eat a £85 sandwich (Honestly, I believe that they do). Then the discussion soon turned into a heated argument and comments such as “I can't believe how miserable everyone with a comment here is. If you don't like the price don't buy one. If someone wants to spend some money on some nice food then why not?” started coming in.

This just shows me how passionate people can be with money. Just the thought of it spending makes them chuckle. And this same passion turns into word-war if the amount of money involved does not conform to their belief of “Value”.

I see flavors of the key elements of Behavioral Finance in this entire e-brawl and that’s psychology with the Endowment Effect. People’s unparalleled passion for money coupled with their headstrong approach towards their beliefs is a flammable mix. That’s what I saw when I read those comments. We all have the right to have an opinion. Usually these opinions are intoxicated with our beliefs.

My Vow – Speculate “I Do”

We live with the belief that technology has made life and decision making so much easier for us. In the context of investments, today we have complex sounding jargon and pretty looking graphs & charts that are spurred out by a Rs 5 lakh software.
Johnathan Myers quite aptly calls this cocoon phenomenon as “Psychonomics”.

Honestly, the fact is that most investors are making the same mistakes they were making 10 years back. The only difference is that these mistakes are more expensive, more in number and faster now because they are done on a Rs 40000 computer on a DSL connection.

Why do I say so and based on what facts? Before I answer this, ask yourself “If I buy a stock, won’t I visualize it going up?” I am not saying that all investors do it, but a majority do. A big chunk of investors today are young debutants without any knowledge or experience in the markets and with a lot of cash in their kitty. Another chunk is speculators who visualize the Sensex hitting 22,000 and staying there (As much as 7 out of 10 investors/traders speculate).

Visualize it like a person idolizing Shah Rukh Khan or Dr. Kalam and wanting to be like them. A stern fan of Al Gore will always defend him no matter what you say to try and convince him otherwise. That’s where biases, beliefs and attitudes come in.

Psychonomics as an approach emphasizes the relationship between investors, unique internal characteristics (the internal market in their heads) and the pressures and reinforcing effects of the external financial markets. It acknowledges the fact that emotions do guide our decisions no matter how practical we want to be. The single minded analytical approach required to minimize risk and maximize gains comes only with time and experience. This is the reason young Fund Managers are more adventurous with Midcap stocks as compared to the wiser and older ones.

The theory doesn’t tell me something I already don’t know, just gives me a new perspective to look at it. And I know for sure that as long as cars run on fuel, the typical Indian Investor will always speculate. After all, it helps him believe and be peaceful – Temporarily.