Shrinking the stockbrokers to a new size

Bears & Bulls, The Psychology of the Stock Market, by David Cohen, (Metro, £18.99)
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The Independent Culture

Glad, sad and finally mad. These are the three emotions you normally come across in the stock market. You are glad when the stocks are going up, sad when they are going down, and mad when you missed them.

Glad, sad and finally mad. These are the three emotions you normally come across in the stock market. You are glad when the stocks are going up, sad when they are going down, and mad when you missed them.

Now if someone could try to put clear logic to the behaviour of the wildlife in the stock markets then maybe, just maybe, we might have a better understanding of what is going on, and find out if there really is any method in this madness.

But about the only thing I can see that psychologists and stockbrokers have in common is their approach to language. They both have a set of terminology no one outside their worlds can understand and in the case of the psychologists, no one can spell either.

I find most investment books exceedingly dull, often retreads of old theories for investment woven together with wise home truths of the stunningly obvious. Occasionally, you come across a new approach or investment style, but like many such schemes, they quickly fade as the circumstances change in the markets, and what was taken as an unbeatable fact last year becomes a fatuous concept 12 months later.

The tracts which give the greatest insight into what is going on are those which review the workings and thoughts of successful fund managers and investors. It is often not the particular technique that is their key, but the behaviour and attitude of them as individuals to what is going on around them. Why did they react in a certain way, what frightens them and makes them move - what makes them different?

These insights give the reader a glimpse of the psychology of the individual. David Cohen's book has hit upon a rich seam, which is far more edifying than any beginner's guide to investing. The chapter titles give some clue to what to expect: A Thousand Ways of Losing Your Pants; The Psychology of Money and Profit; Psychology and the Great Gurus of Investment; and, to finish off the book, Awareness, Profit and Financial IQ.

Although he starts off with the excellent tale of Nathan Rothschild's great financial coup after the Battle of Waterloo, this is not just a book full of daring stories of financial wizardry and dastardly anecdotes. The purpose seems to be to get under the skin of these market participants and begin to understand their thinking.

But what David Cohen, who has a PhD in Psychology, is doing is evaluating you as the reader.

I found myself lying on the sofa as I imagine he has in his office, and rather strangely found myself looking around to see if I was the one being analysed.

To me, psychology has always brought on a level of nervousness. Its very mention brings out all my suppressed insecurities - it's a subject I don't understand, with words I can't spell. Not a sound basis for reading this book. But I found myself caught up with this straightforward approach to this daunting topic and felt proud I actually understood what I was reading. Of course, the best way to hook me in was to feed me with stories of Freud which I can now sound off knowledgeably about at dinner parties (if you are invited to supper at my place, you may wish to decline).

Then, just as the reader is becoming pleased with himself at garnering all this new information, up pops a test. First to one's attention to detail, then one's attitude to risk.

I have never been one to fill in those questionnaires in the backs of magazines to establish how attractive I might be to - well, anyone, really. I never dared for fear of hearing the worst. But Mr Cohen has carefully judged the positioning of his, just before he assesses the workings and capabilities of the professional stock analysts. So the question is, how do you stack up against their profiles?

What the author has done is cleverly led you through the theories, given you an evaluation and, with these still fresh in your mind, taken you through the differing styles and techniques of various markets and brokers. Inevitably, this also has to include those hallowed "gurus" such as Warren Buffett and George Soros, but with your newly found knowledge of psychology you can nowregard these icons in a rather different light.

The author certainly does not pretend to be a stock market expert, but his objective eye from one profession looking at another gives the reader a far better insight of the markets than many an expert I have read. The key to any market is understanding the risk. Everything else is operational.

The greater chance you have of understanding, measuring and acting on the risk, the better chance you have of winning.

By the time that you put this book down you will be suitably more critical when listening to the siren cries of the financial salesmen, which are far more likely to make us invest our money wisely.

Sadly though, unlike Nathan Rothschild, I am unlikely to profit from Waterloo, but seem destined always to be waiting at Waterloo.

The reviewer is a director of Barclays Stockbrokers

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