Irrational Exuberance by Professor Robert J. Shiller is on my top ten book list for investors. It’s one of the most powerful explainers for how emotion drives investment decisions ever written. Shiller shared the Nobel Prize for economics based on the body of work he’s assembled based on this topic.
His new one comes out in three weeks. It’s called Narrative Economics, and will be the fall’s must-read along with the Greg Zuckerman tome about James Simons (The Man Who Solved the Market). I want you to add them both to your Amazon queue.
Also, make sure you go read Shiller’s new piece at New York Times now about how too much worrying over recessions can literally cause one. People can go from spending 20 dollars to 18 dollars to 15 dollars to nothing from one week to the next. Why does this suddenly happen, en masse, across the country in a synchronized fashion? Sentiment.
The probability that a recession will come soon — or be severe when it does — depends in part on the state of ever-changing popular narratives about the economy. These are stories that provide a framework for piecing together the seemingly random bits of information that one picks up from friends, the news or social media.
For consumers these narratives affect decisions on whether to spend or save, whether to take a demanding or an easy job, whether to take a risk or stick with something safer. For businesspeople the prevailing narratives affect deliberations on whether to hire more help or lay off employees, whether to expand or retrench or even start a new enterprise.
Also, thanks to RIABiz and Graham Thomas for this awesome writeup about the dueling opinions from Peter Mallouk and Joe Duran at our Wealth/Stack event this week. Two radically different visions for where the financial advice business is headed. I especially love Brooke’s dystopian description of my morning commute through Queens each morning LOL!