How do you choose to invest?

Dear reader,

Have you ever thought about how you take a decision before you invest in a project?

Risk investment

From an analytical perspective it is no longer possible to understand the erratic markets movements. To understand the underlying psychology of investments is therefore becoming a key element of day-to-day decision-making.

On June 11 and 12 you will gain an understanding of behavioral finance, and its implications on various risks.

Jeffrey Satinover is teaching behavioural finance on
11.06.2013 – 12.06.2013

Sign up for this 2-day course. One of our innovations is the modular structure. You can book each module of the master program individually. Should you start an Exc. MBA, the fee is reimbursed and the ETCS points will be credited.

Kind regards,
Peter Lorange

P.S.  Some time ago, Jeffrey gave us an inteview. You’ll find it here below. A german version of the interview is available here (as PDF download): Interview Jeffrey Satinover

Money is like water: it always takes a line of least resistance.  Where are the global capital assets flowing to?

I will be evasive: Global capital assets are for the most part NOT flowing, but, to continue the analogy, are being dammed by doubt. Corporations all over the world are sitting on huge cash hoards. The question is rather: To where will these assets flow once the dam bursts as financial dams always do? And–is there enough fundamental value whence it will flow to justify the influx, or will a new bubble be created? Most likely a mix of the two possibilities. However, regarding Switzerland, more capital is flowing into Switzerland than a country of 8 million can accommodate

Where do you see Switzerland in the shifting and changing financial markets?

Switzerland has an extraordinary opportunity–again this century as once before in the last–to benefit itself and the world economy both through its industries and because of its intact civil society. It can and should play a prominent role as a neutral haven for business–while being aware, and properly savvy about what a prize it is.

Switzerland has been under huge pressure by various countries, including the U.S. This has more to do with the tradition of American protectionism than with moral. America is protecting it’s own tax havens.

I doubt this has anything to do with “protectionism” in the political sense but–as I think you are getting at–simple self-interest. However, that self-interest, in my opinion, is being improperly calculated by both the present and prior US administration. The amount of tax revenue it has received from the pressure it has exerted is trivial. And it is not the Swiss who are hurt: It is also large numbers of “small” Americans who have never been involved in tax evasion.

Why should a country like Switzerland give up a competitive advantage like the banking secrecy. It protects predominantly the privacy of individuals from greedy fiscal authorities and not tax exiles.

It shouldn’t. But this has always been a tension in the nature of Switzerland: It is small, but because of its efficacy plays a disproportionately important role in economic affairs–a point of pride and of caution. It is subject to pressures from larger countries.

Let’s talk about investment banking. As a financial center, Switzerland must offer both, asset management and investment banking. Will regulations (Basel III and others) really “tame the beast”? And are these regulations really necessary from a banking and financial perspective?

The “beast” can never be tamed as it lies in the heart of man, as novels, fairytales and epic poetry so much more clearly explain than can regulators! Regulations necessarily limit previous excesses, not newly devised ones. I have written an essay with Didier Sornett about it (** “Taming Manias”).

Some investment banker lost huge amounts of money. Are they victims of the market or is it a sign that not even specialists have a clue how to handle the intricacies of the market?

Neither. These kind of trading frauds are remarkably common. The problem is that once “Risk Management” is quantified and automated–I say this teaching the subject myself at the Lorange Institute of Business!–the largest risks are commonly ignored: Human risk. Senior management should actually KNOW the people they have made responsible for billions of dollars of other people’s money. If they can’t know them, they should become smaller. Losing a huge amount of such money is simply the most painful route toward becoming smaller.

A final word about speculative operations on falling prices and economic downturns. This sounds very weird in the ears of ordinary people. Do you see a counter movement to this bad but widespread habit?

Speculating and short sales are not bad. They are a necessary and important part of how markets function. Remember: If regulations prohibit open speculation, clever investors will find indirect and hidden ways of accomplishing the same. Having said that, it is of course true that one may put in place regulations that mitigate the risks–for example, larger reserve requirements for investment banks under certain circumstances.

*Jeffrey Satinover, M.D., Ph.D., is the Managing Director of Quintium Analytics, LLC. He is responsible for the trading strategies employed by the firm’s advisees and partnerships. He was previously Director of Research at Von Kohorn Research and Advisory, Inc. in Westport, CT.

Dr. Satinover is Distinguished Professor of Science and Mathematics at The King’s College in New York. He is a Visiting Scientist at the Swiss Federal Institute of Technology, Department of Management, Technology and Economics in the Chair of Entrepreneurial Risk. He taught at Harvard, Yale and Princeton.

** Taming Manias. J.Satinover and D.Sornette. In Governance and Control of Financial Systems A Resilience Engineering Perspective. Edited by Gunilla Sundström, Deutsche Bank, Germany and Erik Hollnagel. Institute of Public Health. University of Southern Denmark. Denmark (Series : Ashgate Studies in Resilience Engineering)


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One thought on “How do you choose to invest?

  1. Pingback: Risk management is worth nothing when market participants act in panic | Lorange

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