You are currently browsing the daily archive for October 21, 2008.

‘Cortisol is likely  to rise in a market crash and, by increasing risk aversion, to exaggerate the market’s downward movement.’

I listened last night to an interview with Dr John Coates, a former Wall Street trader and the lead author of research published in April by the Judge Business School in Cambridge, analysing the impact of hormone levels (testosterone and cortisol) on traders performance and their ability to make judgements.

Coates goes on to say in the interview:

‘Cortisol, if you’re exposed to it chronically at high levels for a long period of time, it can have a devastating effect on both the mind and the body. In terms of affecting traders decisions what it can do is affect the memories you recall. You tend to recall bad memories, negative precedents. You tend to see risk where maybe there is none. You become fearful, you feel anxiety. I think that decreases a trader’s appetite for risk. While testosterone is causing people to take too much risk cortisol is causing people to take too little risk in the crash.’

I had also earlier read Tim Prices excellent weekly commentary  ‘Diamonds amongst rubble’ suggesting that the [orchestrated?] inducement of large amounts of fear in all of us was necessary to get the financial rescue packages that the banks were looking for.

So are we all now dithering in overdoses of Cortisol induced by fear?

Can we no longer make rational decisions?

How long does it take to wear off?

Has the ‘market’s downward movement’ already been exaggerated?

People react in different ways to fear. Maybe we should worry less about the fear and more about balancing fear with opportunity.


Judge Business School Press Release: ‘Testosterone levels predict City traders’ profitability. Research provides insight into irrational decision-making during crashes and bubbles.’

The Naked Scientist: Hormones and the Money Markets (access to interview transcript and podcast). 

Tim Prices Blog: The Price of Everything.

Getting in touch with your feminine side: An interesting blog article discussing allegations of hormone management amongst traders at SAC Capital.

Premier Foods (PFD, 32.25p) share price has been in turmoil recently, over concerns that the group  ‘faces challenges over reducing its £1.8 billion of debt’  (Telegraph article October 18th). 

The group on Friday October 17th issued a statement aimed to calm concerns over the balance sheet:

Premier anticipates meeting its financial covenants at 31 December 2008. In current market conditions the Board is not pursuing any current plans to issue equity or equity linked products.’

Directors across the board followed up on the statement with share purchases (see regulatory announcement here) thereby sending a signal to the market that they meant what they said, and were prepared to commit their own funds to buy shares.

Directors and non execs bought 862,000 shares at around 32p, committing GBP 275k.

Are these purchases of value in stock selection?


  • 7 directors and 4 PDMRs have bought shares,
  • Management have committed GBP 275k of their own cash
  • Management have increased shareholdings by between 12% and 600%


  • The directors have a poor track record. They have been buying shares all the way down from 247p in September 2007.

I’m afraid the poor track record means that the share purchases do not warrant a ‘STRONG signal’ on the followthedirectors ‘significance of directors dealing’ scale.

View on Premier Foods: Positive- Directors buying

Significance of signal: MEDIUM strength.

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October 2008