How easily swayed we are

Sublimation in physics is the conversion of a substance from solid to gas without becoming a liquid such as that of dry ice (carbon dioxide) - unusual and unexpected. In psychology, the more renowned usage of the word “sublimation” talks about the defense mechanism we employ to reduce anxiety or negative emotions through doing something else that diverts our negativity into something positive or productive. You can think of it as a more socially acceptable and subtle way of expressing our negativity. For example, Beethoven channelling his negative emotions and turmoil into composing the now famous Moonlight Sonata.

The sublimation that I’m hinging upon is a marriage of these two – the socially acceptable and subtle infusion of framing & manipulation techniques used by people or corporations around us through unexpected means.

Take for example, extra adjectives on food increases the probability of it being sold. For example, “Made from Angus Beef”. Angus is just a breed and not a quality indicator, but many are willing to pay a premium. Here's a link to find out more: https://justcook.butcherbox.com/what-is-angus-beef-and-why-the-label-really-doesnt-matter/.

Other adjectives include “Florida Pollock” but are actually from China, “Cod Fish” may actually be Chilean Seabass, and “Fresh Local Greens” that are probably 1 month old.

The scheme to frame consumers’ minds does not just end with the choice of words. Physical stores frame up ridiculously expensive items to anchor the high prices in the minds of customers such that everything else they look around are deemed cheaper. Restaurants mark up their prices through a concept known as “bracketing” since diners do not know how “small or large” and thus ordering “small” which is the actual item.

Even non-visuals such as employing classical music activates connotations of sophistication, affluence, and the wealth schema. As such, consumers will then be more willing to engage in more extravagant splurges.

So, what does framing have to do with investments? Most of the times, we are heavily influenced by an onslaught of news that may not have a huge impact on us.

One such occasion would be outdated news. These statistics are usually after-the-fact and news comes even later. The market would have already priced those in! I’m not talking about the theoretical efficient market hypothesis that the market is in the strong form such that we cannot even profit from investment but rather, effects can be seen way ahead of these pieces of news. Other clearer examples would be GDP or inflation (7.5% at this point in time in the US!) which we have learned how to conveniently ignore now. These indices are probably 3 months behind time and the effects are already priced in! What could be more helpful would be to utilise the Producers’ Price Index or Purchasing Managers’ Index to help with inflation numbers or to predict economic performance as these are probably a month’s lag rather than three!

Another example could be non-impactful news. Some examples off hand that I could think of are US non-farm payrolls, employment rate expectations, and random rumours. These numbers are often laden with “less than expected” or “more than expected”. These words strike fear and propel the need-for-action just from the association with our more important headlines such as “Fed interest hike to be more than expected”. But… these less-than-noteworthy news are just weekly noises that instil unnecessary fear in us and often mean-revert – averaging to nothing but an insignificant error term. We could also further investigate the numbers. If it’s a measly 1% off the expectation, that wouldn’t hurt either.

Not sure if you have heard of property gurus claiming to have a flow of $20,000 rental income a month from 4 properties at an age of 25, let’s say. Sounds impressive and all, right? But there’s a catch. They are probably paying off $18,000 in mortgage payments too. And if interest rate rises – good luck!

Extra embellishments on the headlines may prompt unnecessary associations and a call-to-action. Some of which could be fuelled by a motive to influence the public. We need to be mindful of what assumptions we have based our investment decision on and head back to check if our fundamentals truly did change before making any decision. Do also delve deeper into the publication of news, their sources, and how the statistics are derived. There can be many novel and undocumented indicators as well and if you haven’t heard of it before, perhaps no one else know of it too and, in this case, wouldn’t cause a market-wide uproar in its wake.

If you're interested to chat on this topic or to exchange ideas, please feel free to drop me a message on Telegram @elijah2212 or through email elijah.thj@gmail.com!