The 4th quarter began last month and so with it, expectations for gifts of profits and revenue growth are twinkling in the eyes of many. Even though the recession continues to plague the economy, many businesses are being cautiously optimistic in their earnings calls. There was a mixed bag from GE chief Jeff Immelt, an optimistic Eric Schmidt at Google, and as earnings season wraps up a variety of other reports will show how this past quarter is ultimately received. Similar to how corporations take stock of their business, I started to think about the performance of my relationship over the past quarter and my own future outlook for its earnings and expectations. Less optimistic than most NYSE-listed businesses, I was unable to continue to spin the earnings, and ultimately shuttered the relationship.
As a little background on earnings: US Companies are required by the SEC to publicly disclose their results in a 10-Q. At the file time, they couple this submission with an earnings call a way for investors and stockholders to better understand the change in value of the business and what kind out expectations they have for the future. There is time at the end of the call where the reporting corporations answer the Wall Street Analyst’s questions about future operations.
There is no similar requirement for those dating someone else to report on the growth of their affection or the reduction in interest in the relationship stock, but that doesn’t stop people from trying to figure out what the experiences and the time means. Have I been introduced to his friends? What does Facebook say about us? How much time do we spend together on a daily or weekly basis? These internal questions and valuation calculations can cause even the most seemingly positive couple to re-evaluate their investment decisions.
Just as the real corporations have anticipatory analyst expectations of where operating results and the earnings will come in, girlfriends everywhere have their idea of what the relationship means to them. And just as Wall Street will adjust to results falling far from analyst expectations, people will take drastic steps in their relationship if they find out that their feelings aren’t matched.
The expectations ratio is a stock market indicator that looks at these earnings vs expectations in a more direct comparison–many investment firms have their own calculation and metric for this. A similar indicator that is easy to calculate is the P/E (share price to earnings).
A ratio of 1:1 shows that earnings and expectations are exactly aligned — an idealistic result that would only occur in the extremes or a world of perfect information.
An average expectation ratio for an earnings season is 3:1, implying that there are a fair amount of companies that will exceed expectations in the future.
This past earnings season had a ratio closer to 6:1 which is twice that average rate and shows that a large amount of companies have had such depressed earnings that it doesn’t take too much to be better in the future.
For people looking at their relationship stock, its unsure what the average ratio is: You always want to grow and build your relationship quarter after quarter, but you both have to have similar expectations for those earnings. If one of you believe the R-Stock has a high P/E and will grow fast and furious, while the other believes that you have a low P/E stock, then it doesn’t matter what the earnings are now. In the future they will be far from in alignment and there won’t be any amount of conversation or understanding that will change what has to happen — a stock sell-off.
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do or do not... there is no try.
Right before graduation this year, a good friend of mine sent the following email:
“My little sister is graduating from college in a few weeks and I was hoping to give her sage advice for the near future as she enters the Big Bad World. I thought it would be fun to collect words of wisdom from friends. I’m wondering if you wouldn’t mind taking a moment to e-mail me a few of your thoughts — lessons you’ve learned or things you wish you had known in those first few years after leaving the safety and comfort of college life.
Please be frank, creative and brief. “
I left the email sitting in my inbox till today. I kept thinking about answering this, but my own summer was a rough one job search wise. I never felt I had uber-inspiring information to pass onto anyone. Last night though, I did a spur-of-the-moment trapeze lesson with some current MBAs (for a course called ‘Fostering Creativity’). The course itself is experiencial and focuses on tapping into the more creative side of your psyche to challenge the patterns and routines that you build up through the more analytical and case-based courses in the MBA program. The end goal is to be able to apply these methods within a business context so that you can be more successful.
The overall course experience made me recognize something short and simple that I learned last year: Be thoughtful in your actions, but don’t overthink them.
It’s good to be prepared and study, but if you analyze every choice you don’t trust your instincts.
Though flying on a trapeze isn’t a typically instinctual action, if you don’t listen and respond to the instructors who are calling the body positions, then you will miss your chance to fly through the air and you’ll end up on the net below…
I had done the trapeze class the first time last year. After four successful trips on the bar (upside-down!), I stressed myself out when it came to “the catch” and couldn’t even get my legs over the rung. This year, because I wasn’t even planning on participating, I didn’t allow myself the chance to think about what I had missed the year before. I just focused solely on the caller and did each movement when specified.
…jump… legs up… arms off…
gotcha!
…awesome!
So, I didn’t get a job today. In fact this was probably the 50th job I didn’t get in 50 days, but today’s reason was one of my favorites and it generated a lot of thought related to relationships and, of course, investments.
The guy on the phone said, “You are great, we really liked you, its just… uh, timing”…
I think people around the world have heard that statement not just related to the job search, but in the quest to find the right person and even a variation of that is a disclaimer on every annual report this year.
When you look for any sort of investment (stock, mate, job), there is only so much due diligence that can occur… and that asset strategy has been discussed a bit already but one of the other major factors is with timing… and its the least controllable.
different people, different outcomes
People talk about fate, destiny, and even serendipity that leads you down a particular path towards a job or in life, but its not that simple. Its not a straight-line that we march up, with a constant return and dividend payout… its curve, with peaks and valleys, and cycles. As such, each person has the potential to intersect with another at multiple points along their curve. There is even a possibility, if you intersect when one of you in on an upswing, while the other decreasing, that the timing is not optimal, and the relationship will fail… on the the other hand, if you are both in the right place at the right time, it can be meant to be.
Utilizing this timing element within the relationship connection and moving it beyond a one point connection is similar to the management of a mutual fund or index fund. The ‘mutual fund relationship’ is one where the fund manager (or the members in the couple) are actively managing their relationship in relation to the timing of the market in order to get the best return. They pick aspects of the other person and of themselves to generate higher returns agains the market and perform even when the overall Dow Jones or S&P 500 is off.
The ‘index fund relationship’ is targeted off of the general market index (or your friends and the community around you). In relationships, this can be particularly detrimental at certain times… It can often seem like “everyone is getting engaged” or “all my friends are pregnant” and a friend of mine had three weddings in three weekends in the month of August, but changing your relationship just because you have reached a certain quote-unquote milestone is not an appropriate way to grow your own relationship fund.
The major thing that holds up either of these performance funds and relationship in general is the inherent level of chance or randomness. Yes, you can look at things like the yearly return, 5-year average return, or other past performance indicators to potentially predict the growth of your stock in the future. Traders surround themselves with data about the market, seasonality and other cycles, to potentially predict the best way to optimize the trading of a particular fund. Depending on how risk-adverse or risk-loving the fund is, timing can be predicted to some extent, but cannot be guaranteed.
In that end, you also shouldn’t try to force timing, or beat the market, bccause if your investment is gonna tank, its gonna tank, and you can’t make a company hire you, or recover all the loses in your portfolio in one quarter, or make someone date you. You can analyze your past relationships and how those experiences taught you a thing or two about how people are, and how you can be better in the future, but that doesn’t necessarily mean that your forever is ever gonna be predictable or at all similar to any other relationship in the market.
I’ve been reading the book “Den of Thieves” by James Stewart for the past few weeks. Its about the largest insider trading schedule in Wall Street history and the major players therein. People like Michael Milken and Ivan Boesky who built humongous fortunes only to have their egos and quest for power destroy them.
learning about the deal
But, I’m not necessarily gonna delve too deeply into that story, but more into how insider trading is used rampantly in dating and relationships.
Insider trading is buying or selling a stock based on information that isn’t publicly available. It’s what Martha Stewart went to jail for a few years ago, and its illegal when the trades are not disclosed to the SEC.
What it comes down to, generally is a few different levels of dating insiders:
1. THE PROBER: This is a fully legal form of insider date-trading. You are casually intrigued by a potential ’stock’ but are clueless as to where to begin: You are just not aware of the publicly available information. So, you reach out to those ‘friend investors’ to find out if that person is currently dating, just broke up, or not worth the effort. Insider trading can often help to fill in holes in the early stages of getting to know someone — if they think that your restaurant choice would be a good call, or what type of plans should be made.
2. MATCH-MAKER-TRADER: This person is highly motivated to get couples together. Often they are either good friends with one of the potential parties and believe that the past partnerships were not the best uses of the individuals assets. This person will being by toeing the line of legal insider trading by slipping in some public information like “Joe just ran that same race you did last weekend, wow, you have a lot in common” but will add a level of pressure that separates them from THE PROBER. Sometimes they get more invested in the potential merger because they see benefits on their own end: their compensation that is tied to the stock takeover. If the deal where to occur, THE MATCH-MAKER-TRADER would benefit from the couple spending time together, like in the instance of having another couple to go out with, or getting a good friend to stop complaining about their single status. However, this near-sighted view of the opportunity might ‘raise the cost of capital’ for the new relationship because the deal might not be as ideal as an open-market transaction (i.e. staying single) — this can lead to a decreased growth potential for a long-term relationship.
3. THE NEGOTIATOR: This person spends too much time preparing for the deal and doesn’t actual base their ‘asset selection’ on the experiences they have with the potential ‘takeover target.’ Because they have talked to a variety of different sources, they feel that there is high reliability in the information, but it hasn’t been tested. This person could also be called THE ANALYZER because they have taken the surface-level interactions and built them up through these conversations with the insiders. The believe they are even creating more value for the acquisition than is on the market. Though in theory, there are positives to this research, the negotiator is often assessing the deal with only their payoff in mind — a new partner — and it can backfire if that asset valuation is not sustainable.
Have you come across other forms of insider trading in your relationships? Do you think its always a good idea?
The economic markets have a traditionally cyclical nature. There are periods of high growth followed by those of lessor or low growth. Similarly, Relationships go through periods of time where both people are very happy as well as times where they are shaken up by a difference of opinion or confusion.
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Acknowledging the State of Affairs
The most significant of these effects is that of the “relationship bubble” or when you can look back on the good times (after the crash) and realize that the relationship stock was grossly overvalued. You both had been speculating that the good times could only lead to MORE good times; not that the stock was undervalued and will gain in the future.
This speculation is a form of ‘momentum investing.’ By tapping into the relative position of the stock in the market as well as the trading volume and earnings growth, you have a successful stock pick but not necessarily a sustainable investment strategy.
The three major factors related to this momentum investing or bubble creation are cognitive bias, positive feedback, and rational expectations.
1. Cognitive Bias: There is an extensive list of different biases that effect people’s judgment as they make and rationalize their decisions. When dating, there is a tendency to anchor the relationship on one ‘defining’ event or put power into even the smallest action. In the bubble scenario, herd behavior and group think can lead to a bandwagon effect that increases the stock price above its rational levels. People are no longer making the best choice for their portfolio (or in a relationship, their well-being) because they are distracted by the culmination of a significant number of irrational factors. In other words, they are letting their emotions get the best of them and getting ahead of themselves.
2. Positive Feedback: When the dot-com bubble hit, people had been throwing around money with little concern for real business plans and sustainability. This excitement about stock price growth lead to the attraction of investors that lead to more investors, which lead to an increase in stock price, which lead to… well, you get the idea. Similarly, in relationships, people enjoy the moment — one date leading to a phone call, leading to a kiss, leading to another phone call, etc. All of these positive factors can lead to a happiness that is contagious, and before you know it, your investment is significantly higher than it should be.
3. Rational Expectations: This is the assumption that investors are going to act rationally, and stocks are going to perform as they should in an efficient market. Basically, even if you can’t predict the future, you have an “idea” of what you is supposed to happen. This “best guess for the future” or optimal forecast uses all of the available information, but relationships will never have all of the facts. It’s kinda like some of the message from the movie “He’s just not that into you…” we are so focused on getting to a happy ending and a successful relationship, that we miss the signs that things aren’t perfect as they are and that the momentum is slowing.
The bursting of the bubble is not necessarily the end of everything. Though after the dot-com bubble, many companies closed their doors, there were some that survived because of a new efficiency and understanding of the way technology and the internet could be used to grow a sustainable business. Similarly, the end of the bubble in a relationship means that you can see if its worth the long-term investment.
