(noun, etymology Dutch from ‘boedel’: estate, possession, inheritance, stock.). 1. Crowd, pack, lot, as in ‘the whole boodle.’ 2. a. Counterfeit money b. Money acquired or spent illegally or improperly, particularly when used in bribery for political purposes. 3. Slang for money in general.

What is on Each Side of the Money Coin? (Part II)

Posted on: Jul. 31, 2012  |  By: Ronnie Kahn  |  Category: Advice, General

In Part I, we were looking into that the money is coin is made up of risk on one side with control on the other and that each one is a concept made up by language.  So we come back to money as a socially constructed illusion.  What our culture loves to tell us to maintain that illusion is that money is about the individual and their decisions and not the social.  Success in Capitalism is defined by the self-made man.   Each individual chooses to take on a risk because they feel that they are in control.  If the choice that person makes is right, they make money.  It is not just money but their own personal money that they earn or spend on whatever they want.  The decision had little to do with what others did and more to do with their taking a risk and being on the right side.  If we make a decision that turns out well then we knew more than the next fool and now it is our money that rightfully belongs to us since we made the right choice.  Never mind that whether we made money or not is more a consideration of what others are doing and when we do make a good choice, there was probably a helluva lot of luck involved in a whole complex set of decisions and outcomes that we had nothing do with or could ever foresee.

Where does all this “I am responsible for my own fate” come from?  The money coin is two sided.  Again, returning to the illusion factor, on one side of the coin is risk and on the other side of the same coin is control, each of which are totally made up.  It is nice to think that all things come down to cause and effect.  Isn’t it convenient that we are smarter than the next person when we make the right choice?  If I take this hammer and keep hitting this nail with force, it will either bend or be driven into a piece of wood.  Decisions are just as simple as that.  We want a world that is not chaos where we can have a say in the choice and the bets that we make.  I choose whether I want to buy Facebook or not and I either decide to take that risk or I don’t.  The risk will be in whether the stock price goes up or down.  If it goes up, I know something that other buyers didn’t and if it goes down than my gamble didn’t work.

Risk tries to imply that we can control what is uncertain in life.  We think we can assign a probability of something happening in order to help guide us to a decision.  However, risk is subjective and cultural.  We think of crashing in an airplane as totally horrific.  So we decide to drive somewhere in an automobile since we feel we have more control over our own fate in a car.  The odds of getting hurt or killed in a car accident though are obviously much higher than in an airplane.  Even if the odds are also significantly greater of that same car accident than a terrorist attack, most persons would still want money directed into security rather than into car safety.  It is not just the risk of death but again, the concept of volition that makes death seem so horrible.  Even though upsetting, we accept that someone has died in a skiing accident because they took on the risk where if they are the victim of random violence or hatred, it seems all the worse.  We want government to try and help us with risk if we did not choose to take on that risk.  The result is that we feel we should be protected from toxic waste but, on the other hand, if we choose to go skiing, then that is our business.

Is risk an evolutionary concept?  Do those who survive pay more attention to threats than opportunity?  How much of control is just in our heads?  What about risk, money, and the greater good?  If your medical premiums are forty percent higher because of unnecessary tests that are run in an illusion of control to make patients feel that something is being done or to avoid malpractice suits that pretend everything was done that could be done, should we all be responsible?

Many investment advisers know they don’t know more than anyone else.  What they do know or count on though is that you think you know more.  It has been noted that because of the financial crisis, more Americans are day trading their retirement plans in order to try to avoid the swings of the market and the next meltdown.  And so investment advisors attempt to thrive on the hubris of others and so we become contrarians and wait for the risk/control coin that others flip to come back to our side of the ledger as lost sheep will come back to the fold.  We know we can’t count on what to do next but we do know we have a good shot that eventually things will do the contrarian mantra of waiting for the reversion to the mean.  This all flies in the face of the wisdom of crowds where lots of decisions trump the one lone call.  The key to this wisdom, however, is that the decisions are made independently of each other.  In money decisions, the choice is not made in a social vacuum.  We think we know more than the next person or are influenced by the next person and so on.  This is why booms and busts happen.  An investment advisor is not immune though.  Even with a contrarian attitude, with all these bets being placed and everyone confident they know more than the next investor, the volatility of the market shoots up in the form of big swings one way or another each day.  Of course part of that volatility is that when huge institutional investors make a play than they own so many shares that it starts the big swing momentum.

Did you ever eat a meal and every course was wonderful but then near the end of the meal something tasted very odd.  Now let’s say you eat another meal and you have one thing that tastes just as good as one of the courses of the other meal.  Now, you go on to Yelp.com and write a review.  Most likely you will rate the second restaurant as the better one and mention how your meal was spoiled in the first one.  What you have is the difference between life as a bunch of memories and how you think about it against life as you live it.  If I gave you the choice to have a wonderfully long life with an occasional bad bump along the way or just have a short very wonderful life, I am willing to bet you would take the former.  So why is it they will take the short meal over the long delicious one?  The answer is because our memory controls how with think of things.  This is the same problem with risk and control.  We base our decisions on our memory of things that we like or dislike or an investment that went well or turned bad.  We use regret, fear, elation, or some type of gut reaction when choosing what to do.  When looking at a financial decision, rather than using memory to avoid an investment or jump on the bandwagon of another one, use the broad picture of a financial plan as an experience of life lived to the fullest.  If that decision fits into that perspective than you are most likely in a good space to make a decision and live with whatever happens.

The illusion of money, risk, and control can’t be avoided.  We have to all believe in the illusion because this is the only way social beings can get along on a mass scale.  That does not mean though that you can’t go beyond the concepts by going broader, deeper, and more thoroughly into what is behind the decisions and choices we make.  So many decisions are just made from the context of the choices or by some quick assumption of what works, or whether we associate something as good or bad.  By increasing the frame of the choices, you don’t just accept what happened in the past will happen again or what latest media event is stuck in our minds that gets you thinking that the worst can happen. You can’t predict or control what will happen in life or how much risk there is in life as you would with a coin flip but you can take the time to take a step back from yourself and control analysis.

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