“When you believe in things that you don’t understand,
Then you suffer,
Superstition ain’t the way…”
Stevie Wonder, “Superstition”
Are you tired of looking at a boring computer screen everyday? Each month, the graphics team at third party marketing firm Havener Capital Partners will be providing you with inspirational wallpapers to motivate and make your screen come to life. All will be free to download and compatible for a variety of screens and resolutions.
It’s October… which leads us to think of Halloween. Halloween has been reserved as a mysterious day since ancient times, a time of superstitions. In spirit of this spooky month, let’s explore some common superstitions including some that effect investors and the stock market – perhaps more commonly called “behavioral biases”.
Other than the hook of that extremely catchy Stevie Wonder song, what is a superstition exactly? Superstition is simply defined as “a belief or way of behaving that is based on fear of the unknown and faith in magic or luck; a belief that certain events or things will bring good or bad luck.” Even with modern thought and science disproving the power of superstition, the most educated cultures still believe in the powers of magical thinking:
- Why is it habit to say “bless you” after a sneeze? Dating back to at least AD 77, this superstition was started in response to the belief that a demon could steal your soul after a sneeze.
- Singapore is one of the wealthiest and educated societies, yet superstitions are so abundant that property sales fall each year in August because it is considered unlucky to make major purchases during the month-long Hungry Ghost Festival.
- The number eight is considered the luckiest number in Chinese culture, so much so that the Beijing Olympics kicked off at exactly 8:08pm on August 8, 2008 to ensure good luck.
Investors are driven by data, patterns, and logic – most of the time. Like wagering on your lucky number in roulette, the stock market bets on luck and chance more often than assumed. Financial decision making, although based in rationality, is not exempt from magical thinking or behavioral bias as my colleague Laura discussed in a recent blog. Stock market superstitions tend to thrive on omens, looking to predict the future by looking for a pattern in an otherwise sporadic realm.
The October Effect, the theory that the market will decline throughout the month, still looms over some investors each year. Just as we use the (accidental) omission of the 13th law in Hammurabi’s Code to justify our dislike of Friday the 13th, the psychological impact of the crashes of 1907, 1929, and 1987 spawned fears that the month of October is financially contaminated. Although September is statistically the worst month for investors, and there is no evidence proving anything more than a mere coincidence, The Stock Trader’s Almanac still refers to October as the “jinx month”. Gabriele M. Lepori of the Copenhagen Business School hypothesized that superstition rituals affect financial decisions, studying the occurrences of over 300 eclipses over the past 80 years. The results supported this theory, demonstrating that events seen as bad omens go hand-in-hand with below-average stock returns due to a lowered buying pressure by the superstitious. In times of market insecurity or enhanced media coverage of the eclipse, this effect increased.
“Psychological research shows individuals are more likely to resort to superstitious practices when working in environments dominated by uncertainly, high stakes, stress, and perceived lack of control over the outcome.” From this conclusion, it is no surprise that superstition can sometimes be as common on Wall Street as it is on the Vegas Strip. Throughout time, superstition has been our attempt at controlling the unpredictable universe, to help us formulate a reason why things happen. Studies say superstition can have positive benefits, as long as it does not become a substitution for hard work or a crutch to lean on. So maybe it is a good idea to not walk under that ladder or fly on Friday the 13th; but with financial decisions, it is safe to say it’s best to invest using logic, theories, and academic research – not superstitions.
As well as providing me with a lot of interesting facts, (Can you believe even houses in China with the number 8 sell at a higher price?) my research on superstition and the impact on traditions and financial decisions inspired this month’s wallpaper. The moon provides so many superstitions of its own, along with conveying the spirit of the holiday. This month’s wallpaper highlights a quote from Albert Einstein who reminds us, as investors, entrepreneurs, marketers, and dreamers, that while we need to embrace logic, we should never forget the power of imagination.
Download our October wallpaper as a daily reminder to use logic and imagination.
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About the Author
Alicia Purden joined Havener in January 2016 as Graphic Designer on our Marketing team. She is responsible for the design and execution of all marketing materials, delivering customized creative and marketing solutions for our clients and house brand. She loves all forms of art and design as well as the creative challenge of combining form and function. When she isn’t designing, Alicia can be found practicing yoga, enjoying good food, or soaking up useless trivia in the hopes of one day becoming a Jeopardy! champion.