Tags: Farrell | behavioral | economists | investor

MarketWatch's Farrell: Behavioral Economists Are Full of It

By    |   Wednesday, 03 June 2015 10:00 AM

Behavioral economists, who argue that investors are naturally irrational but can be cured of that irrationality, initially offered hope to regular investors, but no more, says MarketWatch columnist Paul Farrell.

"The new behavioral economics is Wall Street's secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street's most powerful weapon because you can't see it. They even try to make you think they're helping you. Bull," he writes.

"Behavioral economists used to be guardians of America's 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They're the investors' enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors," Farrell notes.

"At first [around 2002, when behavioral economics took hold,] we assumed humans can change — we can still educate ourselves to be more rational. We even assumed Wall Street's behavioral economists would help us become less irrational," he adds.

"Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians."

Bottom line: "Wall Street is using behavioral economics to control and manipulate investors in five dark ways," Farrell says.

The fearsome five include:
  • "Behavioral economics promises to make you less irrational. Wrong.
  • "Wall Street's behavioral programs manipulate investors acting irrationally.
  • "Behavioral economists are political mercenaries, biased and partisan.
  • "Behaviorists purposely mislead investors, helping rich get richer.
  • "Behavioral economics is at best a misleading sales gimmick."
On the practical investment front, Federal Reserve Chair Janet Yellen said last month that the Fed will probably begin increasing interest rates later this year. So how should you invest in an environment of rising rates?

Ky Trang Ho, founder of Key Financial Media, gathered the recommendations of experts and provided them in an article for Forbes

Jeff Reeves, executive editor at InvestorPlace.com, recommends buying Vanguard Short-Term Bond Index Fund (VBISX). "Short-term bond funds are much safer, because their more immediate maturity makes them less susceptible to rate changes," he writes. As for VBISX, "expenses are super cheap at 0.2 percent, and it has been far less volatile year to date."

Eric Wightman, portfolio manager at The Wise Investor Group, advises investors to avoid junk bonds. "Fixed-income money is supposed to be safe," he notes. "Look for high-quality bonds, municipal bonds or floating rate preferred stock." Risk should be minimized, he says. "I would not own high-yield — junk — bonds, or leveraged type investments. It is just a dangerous scenario. They are called junk for a reason."

Morgan Sizer, equity and alternative research and strategy at Concordius Capital Advisors, recommends cyclical stocks. "Sectors that typically benefit from a benign rising rate environment (good economy vs. fears of rising inflation) are cyclical sectors, which include financials, insurance companies, industrials and technology."

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Behavioral economists, who argue that investors are naturally irrational but can be cured of that irrationality, initially offered hope to regular investors, but no more, says MarketWatch columnist Paul Farrell.
Farrell, behavioral, economists, investor
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2015-00-03
Wednesday, 03 June 2015 10:00 AM
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