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The Best of What They Said and I Read week ending 7/9/2017

Short excerpts from articles I found interesting.

I may not agree with the author and the following material is not intended as investment advice.

 AAII Investor Update – July 6, 2017 – Two Concepts That Can Affect Your Returns – by Charles Rotblut

  • “…The endowment effect holds that we value the things we own more than things we don’t own. In one oft-cited study, some participants were given a coffee mug for free while others were not. When the owners were asked how much they would be willing sell the coffee mugs for, they gave a price that was approximately double what those who did not receive the mugs were willing to pay for them. The mere ownership of a free coffee mug increased its value in the eyes of those who were given it. This behavior applies to many other assets as well, including investments…The endowment effect can be partially countered by asking a simple question: If your investments were sold while you were sleeping, would you buy them back after you wake up? If the answer is no, then they are probably not as valuable as you currently think they are.”

The Wall Street Journal – July 8 - 9, 2017 – It’s the Little Things That Can Color an Investor’s Outlook – by Jason Zweig

  • “…In a series of experiments, finance scholars William Bazley and Henrik Cronqvist of the University of Miami, along with marketing professor Milica Mormann of Southern Methodist University, have found that seeing red has a drastic effect on how people view investments.  The researchers offered basic choices like these: Would you rather have a 70% chance of winning $2 and a 30% chance of losing $1.50, or a 70% chance of winning $4 and a 30% chance of losing $5? Merely by displaying the potential losses in red rather than black, the researchers could make people about 25% more risk averse…Likewise, investors viewed charts of stocks in the S&P 500 index with falling prices and predicted how the shares would perform in the next six months. Those who saw charts in red, rather than black, projected significantly lower returns.
  •  …Does this sound far-fetched? More often than any of us care to admit, investors’ behavior is shaped by what Richard Thaler, an economist at the University of Chicago Booth School of Business, calls SIFs, “supposedly irrelevant factors” rooted in mood and emotion.  How much risk you are willing to take can depend on such SIFs as how an investment is described; whether you are feeling happy, hungry, sad or angry; how sunny it is; the time of day and the time of year; whether yourfavorite sports team won or lost; whether you recently saw news of a tragedy, and so on…”

Bloomberg Businessweek – July 3, 2017 – Want a $1 Million Paycheck?  Skip College and Go Work in A Lumberyard - by Prashant Gopal and Matthew Townsend

  •  “…Sabastian Kleis…was supposed to be the first person in his family to graduate from college.  Instead, he dropped out of Kent State University after two years.  By most accounts, Kleis, 24, should be flipping burgers.  But on a recent afternoon, a lumber company was grooming him for a management job.”
  •  “…84 Lumber Co., spends millions on ads to drive home its message that learning a trade can be more valuable than earning a college degree.  The company pays manager trainees about $40,000 a year, and that’s just the beginning.  Those in charge of top-grossing stores can earn more than $200,000, and in a few cases more than $1 million, including bonuses.  Yet astonishingly, its recruiters have had trouble finding qualified takers…84 Lumber is in the vanguard of a corporate conundrum; Skilled and high-paying blue-collar jobs go unfilled, while millions take out loans to pay for degrees of dubious, financial value.  “You can go to college and learn the theology of the Roman Empire,” says Kleis, who just completed a three-day training program at 84 Lumber' in rural Pennsylvania.  “You learn all this ridiculous nonsense, and when you get out, what are you applying that to? ... Almost half of 84 Lumber’s trainees have no college degree.

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