Dog Kisses, Wolf Vomit, and Investing

Our quote of the day is taken from a Time article about cutting edge research into canine cognition and behavior:

“If we happened to spit up whatever we just ate, I don’t think our dogs would be upset at all.”

The gist of the quote is found in the following passage:

The first rule for scientists studying dogs is, Don’t trust your hunches. Just because a dog looks as if it can count or understand words doesn’t mean it can. “We say to owners, Look, you may have intuitions about your dog that are valuable,” says Hauser. “But they might be wrong.”

Take for instance the kiss a dog gives you when you come home. It looks like love, but it could also be hunger. Wolves also lick one another’s mouths, particularly when one wolf returns to the pack. They can use their sense of taste and smell to see if the returnee has caught some prey on its journey. If it did, the licking often prompts it to vomit up some of that kill for the other members of the pack to share. The kiss dogs give us probably evolved from this inspection.

Believe it or not, this example is relevant to investing, finance, economics, politics, and pretty much every other human endeavor, as it nicely illustrates the gaps that can exist between beliefs, perceptions, and reality. When we interact with a dog, we can’t prevent ourselves from thinking human thoughts, thoughts that are also deeply embedded in our biological and cultural backgrounds. That means that for most of us, when another person kisses us excitedly about the face and mouth, they are demonstrating the affection they feel for us (though sometimes it’s other emotions, as Fredo Corleone could attest). And in most cases, that’s probably what the other person is thinking too. But apparently that might not have any resemblance to what a dog is thinking when it “kisses” you. Nonetheless, we tend to believe it is a “kiss”, primarily because receiving affection, real or perceived, makes us feel good. But it’s an interpretation that is probably not well grounded in reality.

In the investing world, decisions and behaviors are not always grounded in a solid assessment of reality either. For example, while it might have felt better to sell risky assets in February or March of this year and be done with it, the reality is that it would have imposed a severe performance cost (to this point, anyways). Likewise, it feels good to own assets that are in popular demand, like homes from 2003-2006, tech stocks from 1998-2000, and so on. The overwhelming use of “momentum” indicators in the investing business indicates that the majority of professional investors are prone to the same kinds of mistakes. While the continuing prevalence of herding behavior in financial markets might be comforting to individual members of the herd at most times, it’s almost certain to cause episodes of significant harm.

Studies of successful investors and traders have found that while they experience the same emotions and discomfort as every other person dealing with risk and uncertainty, they have developed skills that allow them to manage emotions with reason and discipline. Specifically, they have a firm grasp of the fact that they are involved in a probabilistic endeavor that may not turn out well in every case, and they apply consistent decision making processes, even when it would feel better to run the other way. While you may never need to develop the ice water veins of a successful trader, or the steely nerves of a contrarian investor,  there are a couple of old adages that, because they are well grounded in reality, should help all investors avoid excessive reliance on emotion when making financial decisions:

What goes up must (eventually) come down.

Don’t put all your eggs in one basket.

Of course, in the world of human-canine relations, it probably won’t cause any harm to believe that a dog kiss is, well, just a kiss. It sure beats the alternative!

URLs:

http://www.time.com/time/magazine/article/0,9171,1921614,00.html?xid=yahoo-feat

http://www.youtube.com/watch?v=FcFlp6kl508&feature=player_embedded

DISCLAIMER: Symmetry Capital Management, LLC is a Pennsylvania registered investment advisor. The foregoing is not a solicitation to buy or sell any security, or a recommendation to engage in any particular investment strategy.

The first rule for scientists studying dogs is, Don’t trust your hunches. Just because a dog looks as if it can count or understand words doesn’t mean it can. “We say to owners, Look, you may have intuitions about your dog that are valuable,” says Hauser. “But they might be wrong.” See TIME’s video “The New Frugality: Doggie Day Care.”

Take for instance the kiss a dog gives you when you come home. It looks like love, but it could also be hunger. Wolves also lick one another’s mouths, particularly when one wolf returns to the pack. They can use their sense of taste and smell to see if the returnee has caught some prey on its journey. If it did, the licking often prompts it to vomit up some of that kill for the other members of the pack to share. The kiss dogs give us probably evolved from this inspection. “If we happened to spit up whatever we just ate,” says Horowitz, “I don’t think our dogs would be upset at all.”The first rule for scientists studying dogs is, Don’t trust your hunches. Just because a dog looks as if it can count or understand words doesn’t mean it can. “We say to owners, Look, you may have intuitions about your dog that are valuable,” says Hauser. “But they might be wrong.” See TIME’s video “The New Frugality: Doggie Day Care.”

Take for instance the kiss a dog gives you when you come home. It looks like love, but it could also be hunger. Wolves also lick one another’s mouths, particularly when one wolf returns to the pack. They can use their sense of taste and smell to see if the returnee has caught some prey on its journey. If it did, the licking often prompts it to vomit up some of that kill for the other members of the pack to share. The kiss dogs give us probably evolved from this inspection. “If we happened to spit up whatever we just ate,” says Horowitz, “I don’t think our dogs would be upset at all.”The first rule for scientists studying dogs is, Don’t trust your hunches. Just because a dog looks as if it can count or understand words doesn’t mean it can. “We say to owners, Look, you may have intuitions about your dog that are valuable,” says Hauser. “But they might be wrong.” See TIME’s video “The New Frugality: Doggie Day Care.”

Take for instance the kiss a dog gives you when you come home. It looks like love, but it could also be hunger. Wolves also lick one another’s mouths, particularly when one wolf returns to the pack. They can use their sense of taste and smell to see if the returnee has caught some prey on its journey. If it did, the licking often prompts it to vomit up some of that kill for the other members of the pack to share. The kiss dogs give us probably evolved from this inspection. “If we happened to spit up whatever we just ate,” says Horowitz, “I don’t think our dogs would be upset at all.”