Since Princeton psychologist Daniel Kahneman won the 2002 Nobel Prize in economic sciences much attention has been given to studying behavioral finance, behavioral economics, the psychology of investing, and other neurosciences, including neuro-marketing and the new science of irrationality. Though new and often kept hidden as proprietary secrets in the case of quants, it is now clear that Wall Street is using these tools to manipulate and control Main Street investors in subtle and sophisticated ways—structuring fund portfolios, making buy/sell/trade decisions, designing new funds, developing marketing campaigns, training brokers and other clever ways to manipulate Main Street investors. Here’s how the new psych-ops strategies play out in the mind of one major Wall Street banker.
A few years ago, as the mutual funds scandals were peaking, with dozens of fund companies implicated in illegal activities, Andrew Spencer, chief investment officer of J.P. Morgan Chase’s Fleming asset management arm, was interviewed in a Forbes article, “Madness of Crowds.” So what did this senior Wall Street banker think about the American investor? Spencer said: “Investors are stupid.” Today most Wall Street insiders are a bit more circumspect in their choice of words, but yes, he clearly said that “investors are stupid.” Spencer is unquestionably one of the new breed of behavioral finance experts now running Wall Street, guys who believe investors constantly make irrational decisions when buying, selling and trading their hard-earned money for securities. But before you get angry at guys like him, you need to understand the equally “stupid” mindset of the Spencers and the J.P. Morgan Chase Flemings out there. (More)