As I am wont to do given the demands of my primary profession – that would be picking (hopefully) winning stocks – I tend to read a lot. There are two types of articles I read. The first you might consider obvious. I read about anything that smacks of “the coming thing.” I want to know about the leading edge before the “L” in “Leading” appears. To do this, you’ve got to read a ton of articles detailing wild and crazy ideas and hope you’re alert enough to connect the dots before the rest of the (investing) world does. Then you find a publicly traded company (hopefully no one has paid attention to for a long time) and begin buying. This way, when the euphoria of that crazy idea reaches its climax and the rest of the (investing) world is doing everything it can to buy that stock, you can ride into that rising wave, confident you can sell (for a tidy profit) to those over-eager buyers.
OK, like I said, that was obvious.
The less obvious type of article I read doesn’t talk about wild and crazy ideas that become products. Instead, these articles provide potent examples of just how wild and crazy people are. With this type of article, the first type of article stands worthless in a sea of dead trees (or wasted pixels, depending on your choice of media). Remember how I mention that thing about “connecting the dots” in the above paragraph? Well, the secret to connecting the dots is knowing how people behave.
People, contrary to what some business schools still teach, do not behave rationally. Purveyors of persuasion will tell you facts don’t get people to act, emotions do. That’s why life insurance salesmen don’t sell the future value numbers of a sequence of cash flows to prove mathematically why their product will benefit the buyer. Those are measly facts. No, the true power of persuasion lies in describing the prospect’s destitute family, suffering in some inescapable financial abyss, all due to the untimely demise of the prospect. You wouldn’t want to put your family through that? Would you?
And here’s the juicy ironic kicker: To close this emotional sale, the salesman asks, “What rational person would want to put their family through that?” Get it? The salesman relies on the word “rational” to clinch the emotional decision. Wow! Is that chutzpah or what? But, as they say, the best salesmen have a natural chutzpah that drives their success. If you owned a company that required the best salesmen to succeed, you’d hire the ones with the most chutzpah, right? I mean, that’s assuming you wanted to succeed in the first place.
This is a story about one of those latter types of articles. Mind you, based on the headline, I would probably have skipped it, but it was the sub-headline that caught my attention. Here’s the headline: “Smaller Investors Still Prefer Trump.” Knowing this was from Bloomberg News, the last thing I wanted to do was read yet another one of those all-too-obvious biased “anti” candidate articles (this one about Trump). You don’t have to be a trained headline writer to know the word “still” represents the trigger word in this headline (as in “would you believe they still prefer Trump?”).
I was about to delete the link when I read the sub-headline: “But investors with more than $50,000 are losing confidence in him.” OK, I know what you’re thinking. You’re thinking “but isn’t this just another example of Trump-bashing?” Sure it is, but I’m reading beyond that superficial intention. I’m beginning to connect some dots. The search for those dot-connectors led me to read the article (score one for that Bloomberg editor).
The article only caused greater confusion – or maybe affirmation of those potential dot connections. It merely reiterated the post-convention bounce for Clinton (which by the time of the Bloomberg article’s publication had already evaporated and by the time of this article’s publication have begun to show Trump with a slight – but growing – lead). The survey results did reveal one thing of interest: 60% of the voters supported Clinton’s 30% tax rate for the highest earners while 54% of the voters opposed Trumps 33% tax rate for the highest earners.
What? Something’s amiss here. Those supporting Clinton think she’s raising the tax rate. Those opposing Trump think he’s lowering the tax rate. But Trump’s proposed tax rate is higher than Clinton’s. What gives?
In behavioral finance this is called framing. The survey asked the two questions in different ways, leading (or persuading?) the respondent to believe Clinton was raising the top-end tax rate and Trump was lowering the top-end tax rate. (FYI, they’re both lowering the top-end tax rate, but that’s only a fact, and therefore irrelevant. Remember, only the emotional part of the argument counts.)
Here’s where the dot-connecting comes in. The survey says people with investments of less than $50,000 tend to prefer Trump, while people with investments of more than $50,000 tend to prefer Clinton. Now, let’s make a reasonable assumption here. Let’s assume people with less than $50,000 have either less experience or less education (and are therefore less successful) than people with more than $50,000 in investments. Furthermore, as stated by the people conducting the survey, they are all investors, meaning they all have an above-average understanding of business and business concepts.
Now, let’s take a step back for a moment and think in the theoretical world. We’ll remove all the names and only talk in terms of impossible perfection. The president is called the Chief Executive of the United States. A chief executive is a generic term describing any organizational head responsible for analyzing, outlining, and implementing the strategic operations of that organization. The United States of America is a multi-national organization covering a broad array of products and services in many very different industries. The ideal US President would have demonstrable executive/operating success dealing in a variety of industries in a multi-national setting. There are very few opportunities to attain this level of proven success, but being successful in a multi-national business is certainly one of them. Successfully creating several businesses, though nearly impossible, is even better. Best, though, is to do all this and still retain a connection with the rank-and-file of society. It’s hard to imagine anyone filling this bill, but, recall, we describing the ideal of impossible perfection. Still, if anyone could achieve this model of impossible perfection – or anything close to it – those with an understanding of business and business concepts would instantly hire this person as President (assuming they wanted to succeed).
Let’s return to the real world. Clearly, a year ago Trump came into the campaign as the closest to this model of impossible perfection of any of the Republican or Democrat candidates. More experienced, better educated people realized this, including his opposition. The weeks after the convention saw some of the most brutish bashing of any political candidate. It didn’t have to be factual; it just had to appeal to emotion. Before Trump declared his candidacy, he was viewed as a multi-talented successful businessman (with more than a hint of chutzpah, which seemed to irritate exactly the right people). To entice peoples’ passion, the anti-Trump campaigns had to make people believe this was not the case.
Normally, folks would expect the vast unwashed masses of low information voters to succumb to this alluring trickery. But, no! According to Bloomberg, those are the folks least susceptible to it. It has been the more experienced/better educated crowd that seems to have let their emotions rule them.
If you’re selling to the jet set, what does that tell you to do in order to close the sale?