mwah. Big Thinking

Big Thinking

An ode to the psychology of the Markets

*this article talks about ‘the Markets’ – which can sound scary and complex. I’ve given my explanation of Markets at the end – as I see it – take a look and please read on!

I am a passionate people person – although I actually ended up spending more time working in supporting roles in ‘the Markets’ than in HR – ‘the Markets’ being a rather mysterious and oft-misunderstood place.

As someone interested in people, the way they behave and why, working on the trading floor in Markets was an amazing experience given the range of personalities and the diversity of the roles performed.

People within the Markets have an agile, collaborative style to get stuff done quickly – which was a refreshing environment to work on all things ‘people’.

It’s also fascinating the amount of regulatory, digital and operational change permeating through the Markets that people there must deal with.

Despite lots of differences, everyone I met was razor sharp, dynamic, personable, quirky and client-centred. And there’s a unique thrill, a rush being involved in the pace of Markets – moving all the time.

The breadth of change, the volatility and the desire to do the right thing for and by your clients creates a special type of pressure – that would not be for everyone.

For many people the idea of Markets conjures up a range of thoughts and at times emotional reactions from people –  and I get it.

Markets will lead many to think of the Global Financial Crisis (GFC) where a raft of highly paid banking professionals created overly complex financial derivative products whose value depended on low-grade US mortgages.

That’s financial speak for creating a house of cards – that crumbled at the foundations and caused significant, lasting damage.

Others will think of the stock market, the market for live cattle, coffee, live hogs. Or maybe even the markets where you buy fruit, vegetables or flowers.

All valid.

Where I think it gets more interesting to anyone fascinated by people is the way the Markets operate.

Despite all the talk and developments around technology – for instance algorithmic and e-trading, cryptocurrencies (and their ‘bubble’) and dark pools – it’s that delicate balance between thinking, doing and feeling within Markets that I find riveting.

When we look at the Markets listed earlier, there’s a fundamental common thread that’s important.

There are always two sides to a market.

It sometimes feels like more given the many participants in certain markets – but whether you’re buying $100,000,000,000 USD, 3 bitcoins or a bunch of daisies (or tulips) – there are always buyers and sellers.

Another idea I love in Markets that goes much deeper is the debate over whether Markets are rational or irrational. I don’t think it’s black and white.

If markets were purely rational, you’d always get an efficient price – and the concept of arbitrage, i.e. monetising the inefficiencies between two markets, wouldn’t work.

And lots of people find work and make a living based on that.

If markets were purely irrational, you’d get inefficient prices all the time – the emotionality of humans would be central and that wouldn’t work either. People would have little faith in markets.

Despite technology, – or in the case of machine learning and AI, technology that starts to learn for itself – humans remain key to markets as ‘irrational actors’ (it’s not an insult, just a phrase from philosopher Kevin Vallier that sums it up well). There will always be emotion and irrationality.

That irrationality talks to why people hold on to a stock they love: because it was a great company once – but rationally it’s not today.

That explains why people get hung up on talk of ‘bubbles’. Sydney property is a favourite. One could provide a housing supply vs. demand argument – that’s rational. But it goes deeper still.

Bubbles have irrational elements – more fundamental psychological phenomena such as the need for shelter (à la Sydney property) or belonging (okay – Bitcoin could be a bubble) but they sure bring a sense of belonging, purpose and community to a group of people.

This comes to another interesting topic on the psychology of Markets, which to me feels like being on the side of rationality or irrationality. How best to analyse Markets?

There were often passionate debates on whether technical drivers (charts) or fundamental drivers (company management)  are more important price determinants – say, a particular stock price.

Some would spend lots of time, with truly great intellectual and mathematical horsepower, studying the technical.

Charts to explain all kinds of things.

I tried to understand that side of the argument – and it was fascinating. I don’t shy away from a spreadsheet and liked statistics at university – you have to at least try to in psychology.

They patiently explained with logic the historical behaviour of markets through a chart – with cool terms like head-and-shoulders formations, drop-base-rallies; resistance levels and candlesticks.

And the more interested I got, the more certain I was that these lines on charts were simply the sentiment of the participants within a market.

When people are feeling positive, happy and engaged in a market – perhaps they feel good about company management, its prospects, its earnings are on an upward trajectory (or in many tech cases, because they feel it is a cool idea and might make money one day) – and many more, the price goes up. The converse is also true.

These concepts of rational and irrational; of technical and fundamental and of sentiment hold true at work in many contexts beyond ‘the Markets’.

Despite all the other complexities in the world of work, I most look forward to the intrigue and challenge of thinking about these constructs that come with humans at work.

I know there will constantly be lots to learn, it will evolve at pace and I know that in some cases with humans at work, we will just have to accept the nuances.

*the Markets I worked in are often called ‘Financial Markets’ or ‘Global Markets’. There is plenty of complexity, but there need not be. We looked at:

  • Foreign Exchange (read: I need to buy Euros for my summer holiday in Italy but for the global operations of a big business),
  • Interest Rates (read: I have a mortgage, interest rates go up and down so I might want to have it variable, fixed or split – a bit of both but with even bigger loans than a Sydney mortgage)
  • Fixed Income (read: bonds – not 007, more a way to receive stable income via interest payments then your original capital back) and
  • Commodities (read: the stuff our Australian economy once relied upon!)

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