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Making Resolutions Stick and The Least Trusted Banks of 2012                           January 5, 2013, v3, n1

In This Issue
Trading Recap of 2012
Sectors for 2013
FundamentalStrength in 2013
Least Trusted Banks
An Unconscious Perspective
Richard_Peterson_HeadShot

Richard L. Peterson, M.D.
+1 (323) 389-1813 
[email protected]

  

Calm_Gauge   

   Fearmometer  

January 5, 2013

 

Recent Press: 

    

"Taking sentiment analysis beyond trading."  Michelle Price.  Financial News.  Dec 3, 2012.

 

"Why Apple is Losing Ground to Google and Amazon."  Haydn Shaughnessy.  Forbes Blog.  Nov 27, 2012.

 

"Why the RIMM Share Price is Headed Up."  Haydn Shaughnessy.  Forbes Blog.  Nov 26, 2012.

 
Press about the Thomson Reuters MarketPsych Indices:

 

"Thomson Reuters Wins Best Use of Social Media in Trading and Technology at Financial News Awards."  Oct 6, 2012.  The FINANCIAL. 


Partial List of 
Past Press.    

 

    
Resolutions, Honestly

"New Year's Day now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual"

~  Mark Twain

 

It's 2013.  Lot of resolutions have been made: "this year I'll exercise more, eat better, be more patient, etc..."  Yet as behavioral economists we know that most resolutions won't be kept.  Those resolutions that are honored are usually simple and straightforward - goals that would have been achieved even if not articulated.

 

In my experience behavioral economists are some of the worst resolution-keepers.  I won't cast stones, as I'm in a glass house of my own construction.  Remember our weekly newsletter?  That's right, the one that comes every two weeks?  Or sometimes every four weeks?...  Despite heroic weekly efforts, we're not weekly newsletter goal-achievers. 

 

So we set about to get it right this year.  Why is the resolution failure rate so high, even by "professionals" who design behavioral guides like this one?  What can we honestly do to make sure our newsletter is published weekly?  As we dug into this, we realized we had entered a vault in the collective unconscious.

 

Resolutions aren't what we think they are.

 

Scheduling a Donation to Communist Insurgents

"Good resolutions are simply checks that men draw on a bank where they have no account."

~ Oscar Wilde

 

Before we jump into the unconscious side of resolutions, we would be remiss not to mention the one conscious technique - an excruciatingly painful one - for virtually guaranteeing success in completing a New Year's resolution.  This tool is so painful that few people actually commit to it. 

 

Researchers have found that goal-compliance is dramatically improved if one places a PAINFULLY LARGE amount of money or valuables in escrow for delivery to a hated cause in case of failure.  For example, if you value social tolerance, then in case of failure in achieving your resolution you would donate $100,000 to Terry Jones (the Koran-burning preacher in Florida) or, perhaps, the Neo-Nazi party.  If you value liberty, then, in case your goal is not reached, you might commit to donate $100,000 to the Worker's Party, the North Korean mission, or supporters of your least-favorite despot.  When money is committed to a despised charity in case of failure, the goal-achievement rate rises to 80%. 

 

Yet many people will not take such an extreme route because there is a risk of failure - what if you were hit by a bus?  The money would be released - and the release of those funds would be too painful to bear. 

 

Short of committing money to communist, fascist, or religious despots, how can we motivate ourselves to achieve goals?

 

In today's newsletter we'll look at unconscious lessons for how to achieve resolutions.  We'll examine some of the stock winners and losers in various sentiment categories from social media.  We also take stock of our 2012 predictions and make a few predictions for 2013.

Our Trading Recap of 2012

Sentiment tends to dominate short-term trading patterns.  Throughout 2012 we made 30 one-week and medium-term predictions in our prior newsletters using sentiment as a guide.  Overall our predictions were quite accurate, with more than 70% directional accuracy and an average return of 5% per tradeSource data available upon request.

 

Fundamentals and information flow tends to drive longer-term investment opportunities.  In our final newsletter of 2011, we created a model for longer-term (yearly) forecasts based on sentiment.  A few weeks ago I selectively noticed that several of the stocks were winners - and touted them in this newsletter - but didn't check up on what turned out to be the big losers.  While we heavily disclaimed the list as both "(SEE DISCLAIMER - DO NOT TRADE THESE)," "(and NOT TRADEWORTHY, AM I CLEAR?)" and followed the list with, "Many of these were totally unexpected (verging on psychologically disturbing) stock predictions," on average the forecasts were stinkers.

 

I'd like to make the same disclaimer on our 2013 names - again these are longer-term forecasts for which we do not have enough data to establish statistical significance.  They are
NOT TRADEWORTHY.  But they are interesting as you can see below.  We are no longer using the composite sentiment variable used previously, but instead focusing on social media conversations about good versus bad accounting which taken together comprise our single most predictive variable for annual individual equities samples, FundamentalStrength.

Sectors for 2013

Last year we found that our variable FundamentalStrength (accounting-related sentiment) was the most predictive MarketPsych index for individual stocks.  Over the prior 13 years the top decile of individual tickers for that variable in Year 1 outperformed the S&P 500 by 14% in Year 2, while the lowest decile underperformed the S&P 500 by -5% in Year 2.

 

While that study was done on individual tickers, we will first take a look at sectors.  Over 2012 home builders, real estate, and building and construction were ranked the highest in fundamental strength, and based on our simple study, they are more likely to outperform the S&P 500 in 2013.  Energy and (particularly oil) stocks were lowest in FundamentalStrength for 2012.  By the end of 2013 we project that real estate-related ETFs (IYR and XHB) will outperform oil-dominated ETFs (XLE and OIH).

FundamentalStrength in 2013

For individual stocks we will have extensive rankings on our website later this month, but for now I'll list some highlights.  The stocks with the highest FundamentalStrength as discussed in financial social media in 2012 include:

1.  Netsuite (N),
2.  JPMorgan (JPM),
3.  USG Corporation (USG)
4.  Alaska Communications (ALSK), and
5.  Carrizo Oil & Gas (CRZO).

 

The lowest FundamentalStrength group (most negative perceptions) includes:
1. Lam Research (LCRX),
2. Schlumberger (SLB),
3. Cummins (CMI),
4. Blue Nile (BLUE), and
5. Pitney-Bowes (PBI).
 

Least Trusted Banks and Least Innovative Tech Companies

"The one thing that offends me the most is when I walk by a bank and see ads trying to convince people to take out second mortgages on their home so they can go on vacation. That's approaching evil."

~ Jeff Bezos

 

For banks we see Citizens Republic Bancorp (CRBC) as the most trusted bank.  JP Morgan was the least trusted bank of 2012 due to both the "London Whale" and Libor scandals.  PNC Financial Services (PNC) was just above JPM in the trust rankings (that's not a compliment). 

 

One of the technology companies with the highest Innovation Perceptions of 2012 is Triquint Semiconductor (TQNT), while one of the lowest Innovation Perceptions technology companies is Telefónica, S.A. /Telef (TEF), the premiere and incredibly slow Latin American telecommunications service provider.  No surprise about Telefonica if you've ever tried (and repeatedly failed) to connect to the internet in Spain or Latin America.

 

We'll publish the complete list for 2012 on our website in 2 weeks.  But now, back to resolutions... 

Keeping Resolutions:  An Unconscious Perspective

Ah, the unconscious.  The unconscious is what drives national church leaders to become addicted to crystal Meth and covertly gay Senators to publicly denounce homosexuality on the floor of the Senate.  And in our case, we will use the unconscious to our benefit.  To create a resolution that leverages your unconscious, it doesn't have to be do-able.  The two rules for keeping a resolution are to make the goal something you:

   1. Truly and desperately want to do (desirable), and
   2. Would be horribly upset if you didn't do.

 

To get anything, you've got to both deeply want it and desperately not want to be without it.  Wanting something creates a biological squirt of dopamine in your brain's reward system.  This squirt increases your confidence, energy level, and excitement towards goal-achievement.  But some days you feel grumpy, busy, or burned out, and it will be difficult to muster the enthusiasm.   On those days you need to remember the aversive consequences of not doing it (the punishment), which is negatively motivating - it creates a dread sensation that motivates you towards your goal in order to avoid the bad outcome.  

 

Remember, we can change how we think.  You may love chocolate cake and shovel it in your mouth at every opportunity, but if you are trying to lose weight, this behavior has to stop.  So you can try to avoid chocolate cake, but that's not a permanent solution.  Ultimately you've got to think and feel yourself into 1) despising chocolate cake, and 2) loving a healthier alternative (a sugar-free coconut-almond pastry, for example).  How could you possibly despise chocolate cake?  Look up pictures of arteries filled with atherosclerotic plaques on the internet, then imagine those in your favorite relative who died too early of a stroke or heart attack.  Truth be told, I swore off high fructose corn syrup and trans fats during a medical school anatomy class.  During the human dissection I reached into my cadaver's abdomen to identify the aorta.  As I squeezed it, I felt it crunch between my fingers.  That was disease.  Her aorta was full of calcified fat deposits, likely deposited secondary to trans-fat related inflammation and the build-up of fat from excess high-fructose corn syrup consumption.  It was such deposits which had ultimately broken free to cause the stroke that killed her.  I thought of her children, left without their mother.  And I felt viscerally, "not me, no more junk food."  Coca-Cola didn't taste sweet anymore, and I didn't enjoy it.  Mine is an extreme example, but it worked. 

  1. Remind yourself of who you DON'T want to be under any circumstances. 
  2. Then remind yourself of who you DO want to be and how satisfying it will be to succeed. 

Mental Exercise:  Setting Up a Doable Resolution

If you have trouble keeping your New Year's resolutions, then take minute to look inside yourself and communicate with your unconscious.  Ask yourself these two questions about a resolution:

 

How awesome will my life be when I complete this goal? (Think BIG, grandiose downstream implications).

 

______________________________________________________

 

Why would I feel a horrible burning hole of loss if I didn't complete this resolution in 2013?  (If you can't answer why, then it won't stick, so try harder) 

 

_____________________________________________________

 

If nothing meets those criteria, then 1) You're off the hook, you don't need any resolutions but more likely, 2) You should alter your thinking and feeling about the resolution.  There is data to make every bad habit of ours appear intensely appalling.  Take TV watching - do you want to watch less?  If so, consider that every hour of TV-watching decreases your lifespan by 22 minutes according to this study.  This research is distorted, but nonetheless, it's motivating.  Every time you sit in front of a TV, you may be reducing your lifespan to before your granddaughter's high school graduation.  She's going to miss you...

 

If you have trouble with resolutions, then the above is the key to keeping them.  Define why it must happen - both the intense benefits and the adverse consequences.  Make your understanding of the benefits and adverse consequences so intense that you MUST follow through.  Otherwise, the new behavior won't be prioritized.

Trading Recap

As noted above, our short-term trading results were impressive in 2012.

 

Trading recap from last newsletter:  Last newsletter's one-week buy on Decker Outdoors (DECK), maker of Ugg boots, paid off as the stock rose 10% over the week.  The one-week short on the Chinese ADR Trina Solar (TSL) was volatile but ended the week in our favor, down 3%.

 

Week ahead:   We have a one-week short on the Solar ETF (TAN).  We have a one-week buy on Nike (NKE).  (See Disclaimer).

Housekeeping and Closing

Check out the Thomson Reuters MarketPsych Indices for monitoring market psychology for 30 currencies, 50 commodities, 120 countries, and 40 equity sectors and industries in social and news media. 

 

We have a number of Spring 2013 speaking engagements in New York, London, San Francisco, Toronto, and Boston - we will provide locations and venues for public talks as the dates come closer.

 

Let us know about your experiences with psychology in the markets - we look forward to hearing from you!

 

We have speaking and training availability.  Please contact Derek Sweeney at the Sweeney Agency to book us: [email protected], +1-866-727-7555

 

Happy Investing!

Richard L. Peterson, M.D. and The MarketPsych Team 


Books  

Both books named "Top Financial Books of the Year" by Kiplingers.

 

MarketPsych: How to Manage 
Fear and Build Your Investor Identity

Inside the Investor's Brain:
The Power of Mind Over Money (Wiley Trading)

 

 

Who We Are

MARKETPSYCH DATA 

179 POST RD W 2, WESTPORT, CT 06880

 

www.marketpsychdata.com

  • Linguistic analysis paired with behavioral economics opens a new dimension for financial products and trainings. 
  • MarketPsych Data provides granular quantitative sentiment data from streaming social and news media through Thomson Reuters.  Please contact us for more information.
  • Optimized to identify value over two+ years of real-time trading.
  • The Thomson Reuters MarketPsych Data feed includes minutely macro indices tracking reported price action, supply and demand dynamics, media expectations, and other concepts from 2 million articles daily for major countries, commodities, currencies, ETFs, and equities (over 20,000). 

Contact: 
Richard Peterson
+1 (323) 389-1813 

[email protected] 

 
DISCLAIMER

 

This material is not intended as and does not constitute an offer to sell any securities or a solicitation of any offer to purchase any securities. 

 

The information of the MarketPsych Report is presented free of charge.  It is no substitute for the services of a professional investment advisor.  Investments recommended may not be appropriate for all investors.  Recommendations are made without consideration of your financial sophistication, financial situation, investing time horizon, or risk tolerance.  Readers are urged to consult with their own independent financial advisers with respect to any investment.

 

Past performance is no guarantee of future results.  Screen and model signals and related analysis are for informational purposes only and should not be construed as an offer to sell or the solicitation of an offer to buy securities.  Most financial instruments (stocks, bonds, funds) carry risk to principal and are not insured by the government.  Anyone using this newsletter for investment purposes does so at his or her own risk.

 

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