Tuesday, March 14, 2006

Investing in India

Investing in India

This post is a short divergence from pure investor psychology. It is a quick photographic tour of one of the most profoundly changing countries in the world. The Bombay Stock Exchange has been rocketing, particularly under the influence of foreign institutional investment, and the rally has recently neared the 11,000 level.

I outsource some financial software development to India, and I've had several years experience working with, travelling through, and living (3 months) in India. On my last trip, September through December 2004, I took the following pictures around the BSE.

During September 2004 one of the local business newspapers had the results of a survey of stock brokers. Only 33% of the brokers thought the BSE would reach the 6,000 level in 2005. The man pictured to the left was standing outside the BSE, and has the Journal tucked under his arm.

Other areas of India had joined the investment stampede in 2004. To the left is the storefront sign of a financial advisor selling mutual and bond funds. Now on plywood, soon on mirrored glass. This photograph was taken in Mysore, India (in the South - Karnataka state).

The contrast between the traditional and the modern is fascinating, and one hopes that the increasing divergence in wealth will not provoke an anti-capitalist backlash. Notice the women carrying pots and pans on their heads outside an investment shop.

Since India is a society that has been economically stratified for millenia, a backlash is only likely to occur if the lower castes start to see real economic progress as a possibility, but are then disappointed.

Here is the sign of Saraswat Bank, sharing the same building (on the "back" side) as the BSE. You can see the trees growing out of its second story sign.

This is an IPO of shares in a shipyard. You could subscribe to the IPO right there under the umbrella. They wouldn't sell shares to me, though. India currently allows only registered mutual funds and hedge funds to make direct investments. Or if you're of Indian extraction you can register as a "Non-resident Indian" (NRI) and purchase shares directly. Rumor is that Indian markets will open to foreign individuals by the end of the year.

I contacted a dozen brokerage firms in India and some foreign firms doing business in India (such as HSBC and ING), and none would allow me to invest in Indian shares, except for two enterprising men who were particularly keen for me to tell them how much money I was going to "give" them. I found the "give" word a little too strong, so I avoided their brokerages. One worrisome observation was the enormous cost savings on commissions for trades opened and closed within the same day. From 1% per transaction for a multiday trade to .05% per transaction for a round-turn within one day. No doubt that liquidity, and probable speculative excess, are encouraged by such pricing schemes.

To the left are a few of the wide array of financial publication available in India, primarily in English.

Happy travels,

Thursday, March 09, 2006

Trader Experiment in Bay Area

Trader Experiment in Bay Area

Wanted to mention a study we're doing on the psychophysiology of traders in the San Francisco Bay Area. Similar to Andrew Lo's experiments, but measuring in more detail. I'm looking specifically at the physiological signals of emotion and arousal that preceed trading, and doing an analysis of whether any of these signals can predict trade outcomes. E.g., is there some type or degree of anticipatory emotion that predicts bad trades vs good ones. This study is performed by a PhD at the Center for Neuroeconomics at Stanford University and myself (medical doctor) at Market Psychology Consulting.

The experimental protocol is below:

Traders will have 4 electrodes painlessly attached to the face and two attached to two fingers of the non-dominant hand. The protocol requires a 6-second pause before trades are executed. The hand should be held completely still and no talking or large movements during the 6-second pauses before the trade. Trade success or failure should be known within three months (so we can measure the correlation with trade outcome). I plan to do a 30 minute period of measurement on one day, possibly additional sessions on different days, if the traders are up to it. The 30 minute session should be one in which the trader makes at least 5 trades (otherwise it's not worth the time).

If interested in participating, please let me know. We'll come to your workplace. There is no payment for participating, only the happy knowledge that you are contributing to the advancement of trading science. Plus you'll get to use your own results to improve your trading (if we find something).