Posts tagged ‘GE’

“Pessimism Porn” Takes a Hit – Emotions of Investing

Dark Clouds

“Every dark cloud has a silver lining, but lightning kills hundreds of people each year who are trying to find it.”

–Tongue-in-cheek quote from motivational poster.

There’s nothing like a little destructive global financial crisis to boost viewership ratings. CNBC benefitted last fall from all the gloom and doom permeating the media outlets, but unfortunately for the cable business channel, a more constructive market environment over the last six months doesn’t sell as well as what New York Magazine called, “pessimism porn.” Tyler Durden at Zero Hedge recently provided statistics showing the impact of more optimistic financial markets. CNBC experienced total viewer year-over-year declines of -37% as measured in mid-September – worse than Mr. Durden’s late July statistics that illustrated a -28% decline.

Small wonder that we now see discussions developing between Comcast Corp. (CMCSA) and General Electric (GE) over a potential partnership with the NBC-Universal assets. Other potential parties may enter the fray, but GE’s shopping of the traditional media unit is evidence ofthe station’s pessimism over a secularly declining business.

Businesses are not the only ones influenced by pessimism – so are individuals. Behavioral economists Daniel Kahneman and Amos Tversky have provided support to the impact pessimism has on peoples’ psyches. Emotional fears of loss can have a crippling effect in the decision making process. Through their research, Kahneman and Tversky showed the pain of loss is more than twice as painful as the pleasure from gain. How do they prove this? Through various hypothetical gambling scenarios, they highlight how irrational decisions are made. For example, more people choose the scenario of an initial $600 nest egg that grows by $200, rather than starting with $1,000 and losing $200 (despite ending up at the same exact point under either scenario).

Of course investors have short memories from a historical perspective. Whether it’s the 17th century tulip mania (people paying tens of thousands for tulips – inflation adjusted), the technology bubble of the late 1990s, or the more recent real estate/credit craze, eventually a new bubble forms.

If you are one of those people that get sucked into “pessimism porn” or big bubbles, then I suggest you grab the remote control, turn off CNBC, and then switch over to The History Channel. You may just learn from the repeated emotional mistakes made by those of our past.

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in CMCSA, GE, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

October 7, 2009 at 2:00 am 3 comments

Jack Welch University: Diploma or Black Belt?

You too can get your name plastered across a university (or online) for a measly $2 million. That’s what Jack Welch did when he purchased a 12% stake in the primarily online Masters of Business Administration Program (MBA) of Chancellor University. The name of the school according to The Wall Street Journal will be the Jack Welch Institute (JWI).

According to the WSJ:
Boston research firm EduVentures Inc. estimates that 11% of the roughly 18.5 million U.S. college students took most of their classes online in the fall of 2008, up from 1% a decade ago.

Online higher education will generate revenue of $11.5 billion this year, EduVentures says. But “there is a concern about quality,” says EduVentures Chief Executive Tom Dretler, because there’s “much, much less selectivity” of students in the admissions process.

So what does a Jack Welch student receive upon graduation – a diploma or a General Electric (GE) Six Sigma Black Belt? And what about Jack’s hard-nosed, no-nonsense business approach? Will all students learn how to negotiate like Jack, especially when it comes to retirement perks? The $21,000 tuition bill sounds steep on the surface, but well worth it if graduates can finagle exit package perks like Welch’s $86,000 a year consultant fee, use of an $80,000 per month Manhattan apartment, court-side seats to the New York Knicks and U.S. Open, seating at Wimbledon, box seats at Red Sox and Yankees baseball games, country club fees, security services and restaurant bills (The New York Times), not to mention a limousine, a cook, free flowers, country-club memberships and a charge account at Jean Georges restaurant.

Now that’s an MBA degree that may attract interest.

Wade W. Slome, CFA, CFP®           www.Sidoxia.com

June 24, 2009 at 5:30 am Leave a comment


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