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‘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.

[See also May 4 post: ‘Directors share sales outnumber buys- Is the market expensive?’]

[See also subsequent post on October 31st: ‘ Directors ARE buying shares. Buys vs Sells 10:1’]

A question many of you have is whether directors are currently buying shares, and presumably does that indicate a turning point in the market?

The straight answer is ‘no more than usual’.

If you use digitallooks excellent visual tools facility, you can ask them to show you the number of directors buying or selling over a certain period.

As at last Friday, the number of companies in the FTSE 350 indicating net directors dealings over GBP 50k over the period I asked for (1, 3 and 12 months) were as follows:

1 month to October 10 2008:

26 companies showed net selling over a cumulative GBP 50k, and 32 companies showed net buying.

3 months to October 10th 2008:

58 companies showed net selling, and 54 companies net buying

12 months to October 10th 2008:

144 companies showed net selling, and 130 companies net buying.

I’ve just today run the analysis for the last seven days (to October 13th) and it shows

4 companies showing net selling, and 9 companies showing net buying.

I believe that this is not statistically significant due to the short period and the low number of companies exhibiting activity. Please also bear in mind that digitallook uses data as announced by the stock exchange, which will include the receipt by directors of scrip dividends, share options, and Incentive Plan subscriptions.

In followthedirectors research I exclude all Incentive Plan and dividend receipts, and any sales that are made to pay tax on options exercised. I aim to look at shares sold to receive cash, or shares bought with cash.

For a list of directors dealing activity use the category criteria on the top left of this page, or click on the following: Directors Buys, Directors Sales.

In a week of severe stock market turbulence I come back from a week away to see swirling whirlpools stirred by uncertainty and panic.

So the question has to be: What do you and I do now?

I have three key memories that keep resurfacing which I want to share with you:

1. Yield. When I started my first job in the UK stockmarket in 1979, the key determinant of valuation was yield. Definitely not earnings. Nobody trusted earnings. Not prospective dividend yield either, but the historic dividend yield on stocks. Stock selection in the face of a recession needs to be based on the ability to survive. Choose companies that will continue to manufacture or sell their products because we need them in our day to day lives (I’m thonking food and healthcare), and value them using historic dividend yield.

Are these companies more likely to survive than your bank?  Yes, probably.  So maybe a dividend yield of over 7%, preferably nearer 10%, would be the levels to start buying.

2. Asset protection. I was in Argentina a couple of years ago, staying at a wonderful ‘loft’ apartment in Buenos Aires and talking about property values by the pool with a local who owned three apartments in the building. He said simply that investing your money in property is safer than in the banks. The banks can (and did) take it away. He didn’t own three properties because he was speculating on rising property values, he owned them because he believed them to be secure assets.

So that prompts me to think again about property as a secure asset, in that it will still be there next year, whereas your cash may not be.

What about Gold?  Yes, it is secure, but I get that niggling feeling that if I buy gold now I’ll be the last to the party.  Having said that, it may be worth owning only as an insurance policy for 5-10% of your assets.

3. Time to buy? These markets could easily fall another 30% from here, possibly in the next week! Where there is panic there is also opportunity, and we are getting closer to the opportunity levels. So do your research now and get your shopping list together. Then close your eyes, put in buying orders with strict limits, and above all don’t tell the mrs (or your partner)! Don’t use all your firepower, but start to drip money into the market bit by bit.

In October 1987 as the market plunged the experienced hands were saying use this as a buying opportunity, while the younger guys (including me) were panicking. Of course it was the wise brokers who had lived through the early 1970’s who were right.

Do we head for a depression? Maybe. We’re already in a (likely prolonged) recession. Nouriel Roubini suggests not a quick two quarters of negative GDP, but a prolonged 2 year recession (Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression). Either way diversification of your assets is key.

Lastly, turn the TV off and don’t get sucked overboard into the maelstrom. The turning points for markets are when your cab driver is talking about them. Remember 2000 when cabbies told you which tech stocks to buy?  What are they saying now? (I’d love to hear- please write their comments in the box below).

Above all, follow your gut instinct. And Good luck!

Once described as ‘inhospitable and unsuitable for the agriculture which would be needed to sustain a settlement’ ( Willem de Vlamingh, 1697), Perth Western Australia yesterday was the latest city to boast a Tiffany store.

Is this a sign of the peak in commodity prices and the global mining boom?

(The thoughts of a ‘aren’t commodities cyclical’ cynic)

‘Corporate insiders on balance are betting on a rising market. The recent pace of insider selling is right in line with the long-term average. Insiders are not signaling any major market break in the next 9 to 12 months.’

So reports Mark Hulbert in Marketwatch May 21st.

He is looking at the Vickers Weekly Insider Report, published by Argus Research.

Click here to see the article.

A mail from John Mauldin has just hit my inbox. He picks up on a comment by Soc Gen showing that analysts are always behind the curve when it comes to earnings forecasts (did you know this?). He goes on to conclude that the likely fall in company earnings this recession is nowhere near being discounted by the share market (see article ‘Asleep at the wheel’).

I’ve borrowed from the newsletter an interesting slide summarising a recent Duke University CFO survey which strengthens my argument for watching directors behaviour, in preference to listening to what they say. Notably that

..CFOs are around 57% optimistic about the economy…., but are 68% optimistic about the outlook for their own firms!’

Duke University CFO Survey

A small diversion. I was just reading this newsletter, and want to share it with you.

This has nothing to do with directors dealings, but everything to do with the deepening recession in the US.

Read John Mauldins ‘Thoughts from the Frontline’, and subscribe to his weekly email. Go to

Interesting article from the Telegraph pointing to Directors Dealings as an indicator for the overall market.

Have a look at this article in todays FT. Sometimes director buying activity signals a market turn. I don’t have the data to prove it, but it is one of many indicators that could support a change in direction for stock markets.

‘Senior US company executives bought more shares than they sold last month for the first time in 13 years’……………. see FT article

I look also at directors buying activity by sector. I made what was a controversial call at the time, on the back of directors buying activity in the Real Estate sector (see entry of November 25th). Since then the sector is up 10%, and the FT All Share index down 2%, so a relative outperformance of 12%.

Since January 17th, when I highlighted directors buying outpacing selling, we have seen the Travel and Leisure sector outperforming the All Share by 7%, and the Construction and Materials sector by 2%. Early days I feel for these two.

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March 2021