How the color red influences investor behaviors and actions

Do color blind investors make more rational trading decisions? It’s possible. In this fascinating new study, William Bazley, an assistant professor of finance at the University of Kansas, finds that “using the color red to represent financial data influences individuals’ risk preferences, expectations of future stock returns and trading decisions. The effects are not present in people who are colorblind, and they’re muted in China, where red represents prosperity.” Of course, there are millions of inputs of data that affect investor behavior—but something as simple as converting your screens to grayscale may actually yield more rational long-term decision-making (a tactic I personally will experiment with).

“In regard to finance, Bazley was most surprised to find how red color appears to prolong pessimistic expectations in relation to negative stock returns, while viewing the same information in black or blue leads to reversal beliefs. He said, “This suggests the use of color may have broad implications for stock market liquidity during times of crisis and the momentum anomaly.” Their research also drew on other examples outside the financial community where colors influence choice. An emerging field called color psychology analyzes how this affects human behavior. Bazley cites a 2005 study in the publication Nature that argued the color of sportswear may influence outcomes in the Olympics. “Much like our everyday choices, our financial decisions are likely to be shaped by factors which are not specific to the decision at hand. This can be due to a variety of reasons, such as limits to our attention. Ultimately, it suggests that incorporating aspects of psychology when studying financial decision-making is likely to yield insights,” said Bazley, whose “Pervasive Effects” research is based on eight experiments with a total of 1,451 individuals.”


$123 billion in long-term equity declines across the fossil fuel sector

Since 2011, financial think-tank Carbon Tracker has analyzed the stranded asset risks of fossil fuel producers that are nearing the end of their economic lives. In this excellent new note, Carbon Tracker analysts offer a nuanced and in-depth view of how share issuances by fossil fuel producers have lost an astounding $123 billion in market value between 2012 and 2020.

“On the other hand, share issuances by electric utilities, mainly those focused on renewable energy generation, have outperformed both their utility peers and the general market and gained $111 billion in value, while issuances from renewables/cleantech companies have outperformed both the general market and their renewable energy peers and gained $77 billion in value. This suggests global equity markets have already been taking the diverging long-term trends and outlooks for fossil fuel producers and renewable energy companies into account, at least to some degree. A sharp rebound in the oil price and also in energy stocks in early 2021 indicate that equity market sentiments can quickly change – even without any changes to the long-term outlook.”


Are we about to see an epic boom in entrepreneurship?

Scott Galloway, a marketing professor at NYU, makes a compelling case that post-crisis periods tend to result in a flourishing environment for entrepreneurship and innovation. In this recent post, The Sonic (Entrepreneurship) Boom, Galloway writes about how a confluence of factors—from unprecedented stimulus to remote work trends—will lead to “a new generation of web 3.0 firms and leaders” over the next 36 months.

“Post-crisis periods are among history’s most productive eras. London rebuilt after the Great Fire with grand new architecture, and Europe after the worst of its plagues underwent a commercial revolution. The Marshall Plan turned enemies into allies, fomenting peace and prosperity for over half a century. Leaders also emerge from crises. Ulysses S. Grant was a washed-up soldier without prospects until war broke out, but that war created the opportunity for Grant to save the Union and advance the cause of freedom. This is all to say: In the next 36 months, I believe our economy will birth a new generation of web 3.0 firms and leaders. Why?”


The four pillars of Shopify

Invest Like the Best podcast creator Patrick O’Shaughnessy has a new initiative—Colossus—which I highly recommend to any investors and/or operators out there looking for thoughtful deep dive conversations on disruptive business models. In one of his first episodes, Patrick interviews Alex Danco, who works on the Money team at Shopify, about a range of Shopify subjects, covering everything from Shopify’s revenue model using Apple as a guide, Shopify’s culture, and how Shopify is aiming to serve merchants all around the world.

“So in my opinion, understanding how Shopify’s product is laid out is by analogy to another great company, Apple. We aspire to one day hit that level of greatness, but the Apple metaphor is a pretty good one. So you can start with Core Shopify, which is what is at the nucleus of Shopify. It is a team that is called Core internally, but this is like the iPhone, right? The job of the iPhone is to be like the operating system of your entire digital life. And similarly, the job of Core is really to be the operating system for commerce. It sits at the heart of everything that we’re building for merchants, and its job is to support everything around it and have it just work beautifully well.”


A few more links I enjoyed: 

“Evidence is mounting that a tiny subatomic particle seems to be disobeying the known laws of physics, scientists announced on Wednesday, a finding that would open a vast and tantalizing hole in our understanding of the universe. The result, physicists say, suggests that there are forms of matter and energy vital to the nature and evolution of the cosmos that are not yet known to science. The new work, they said, could eventually lead to breakthroughs more dramatic than the heralded discovery in 2012 of the Higgs boson, a particle that imbues other particles with mass.”
“His words were halting and coldly technical, but every analyst on the call heard this and thought the same thing: Holy crap. Swan’s suggestion was possibly the most radical thing to happen to Intel in its 52-year history. Intel had climbed to the top of the more than $400 billion-a-year chipmaking industry by designing sophisticated processors and mastering the complicated techniques needed to produce hundreds of millions of them to power the world’s computers—doing all that in-house.”
“With a few exceptions, allocating capital to funds is not a glamorous business and faces consistent budget pressure. Some even do away with it altogether. This may be hard to imagine from the outside, but teams allocating tens of billions of dollars can be under-resourced relative to what they want to achieve (and will often feel underpaid relative to the people they allocate to.) In many cases they spend significant amounts of time on dealing with the internal bureaucracy. Meanwhile, they face a deluge of incoming pitches. Their job constraints require that they guard what precious time they have to meet managers.”

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