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Friday
Oct052012

Envy Outweighs Greed in New Investment Study

Digital Vision/Thinkstock(JERUSALEM) -- “It is not enough that I succeed,” the late Gore Vidal once noted. “Others must fail.”

Vidal, who also famously admitted that “a little something” in him dies whenever a friend does well, would have had a field day with a new study, “Investment Choices with Envy and Altruism,” conducted by Israeli economists Haim Levy and Guy Kaplanski. Their findings are totally counter-intuitive from an economics standpoint (unless, of course, you’re Gore Vidal, in which case you probably knew it all along.)

Here’s the gist: We are all happy to lose money, just as long as other people lose more.

“Normally in economics we assume that the person wants to have the highest benefit from his wealth, and he does not care about other people,” said Levy, a professor of finance at Hebrew University, in Jerusalem.  "But that’s not what we found.”

About 10 percent of nearly a thousand business students and business executives interviewed in Israel, the United States, Switzerland, Turkey and China, were “altruists” -- that is, they said they were happy if a friend or family member made more money than they did. This only applied to someone they knew, however.

“Altruism is very rare toward strangers,” said Levy. “At most what we get is that you are indifferent to strangers.” (Indeed, another 20 percent they didn’t care what happened to anyone else as long as they had their own money.)

But a whopping 70 percent said they were fine losing money, provided other people lost more. "‘I’m happier if you are relatively poorer’-- which goes against economic theory,” said Levy. “Economic theory says, ‘I should be happy with what I have.’ But we found that, ‘I’m happy to decrease my wealth as long you decrease your wealth.’ This is pure jealousy.”

This jealousy applies to strangers, too, and not just our nearest and dearest. For example: Suppose your portfolio decreases by 10 percent. According to the study, if the Dow Jones Industrial Average drops 20 percent, you would be OK with your loss, because you only lost ten percent -- and everyone else, even those you don’t know! -- lost more.

On the other hand, if your portfolio increased by 10 percent and the Dow went up, say, 30 percent, you would be unhappy. Sure, you may have made money, but other folks made even more -- which is completely unacceptable in a world rife with schadenfreude.

Although the findings are bleak about human nature, they don’t especially shock ABC News personal finance columnist Ted Schwartz, the president and chief investment officer of Capstone Investment Financial Group. "Our job as an adviser is to teach clients to run their own race-- 'What are your goals and how do you achieve them?'” he said. “Society trains you to run a comparative race-- 'I lost 20 percent but they lost 30, so I win.’ So, I am not too surprised by this study."

“The key to success,” he continues, “is to avoid large periods when you are not compounding your money due to losses. As Warren Buffet says, rule one is don’t lose money. Rule two is don’t forget rule one.”

And if your best friend happens to forget both rules, well, so much the better.

Copyright 2012 ABC News Radio

Monday
Jul182011

Gold Price Hits New Record

Ablestock.com/Thinkstock(NEW YORK) -- Strong demand for gold drove prices for the precious metal to record highs Monday, even as stocks sank and Washington remained mired in debate over what to do about the nation's debt ceiling.

The price of gold is being driven up by the debt deadlock in Washington, said one expert.

"Investor confidence isn't there," says Jonathan Corpina, senior managing partner of Meridian Equity Partners in New York City. "People are looking at the debt debate and not getting any new information. What we're seeing is impatience, I think. It's time for the politicians to put party aside and find some sort of resolution."

Uncertainty, he says, is always bad for markets: "Investors flee the market when there's uncertainty." Their move into gold is "the same thing as if they were putting their money underneath their mattress," he says.

As for traders, the same holds true, Corpina thinks. "Volatility is high right now. They'll wait to get back into the market until they get more information."

Though Monday's price per ounce closed at $1,602.40, an all-time high, Corpina says gold's price "will continue that way" until Washington resolves its crisis.

He said traders are also spooked by unemployment, which Corpina calls "all-important." Despite the government's stimulus efforts, "We haven't seen the unemployment numbers move in the direction we want."

People turning to gold, he thinks, are doing the right thing.

"You need to have a balanced portfolio," and having some of your money in gold is a way to diversify. Plus, gold always has had the status as a safe haven.

"It's one of the safest bets out there. The value has always been there. On Main Street, people see its value rising higher. They're no longer sure that cash is their safest bet," Corpina said.

Investor confidence, he predicts, will return. "It'll be back, but only after this debt debate has been resolved." For now, though, "It's a cloud hanging over us."

Copyright 2011 ABC News Radio







ABC News Radio