I read an interesting article in the New York Times recently on the rise and fall of Tiger Woods and comparing this with the rise and fall of certain sections of the financial industry in relation to the Global Financial Crisis. Much is often made of the similarities between the psychological aspects of sport and trading and investing in the share market, and how we can use the skills we have developed in our sporting endeavours to strengthen our interaction with the markets. This article compares the ‘bubble’ that grew around Tiger with the ‘bubble’ that grew unabated in the financial markets prior to the GFC.
A lot of the comparisons in the article have to do with the herd mentality of human behaviour and our actions in getting caught up in waves of euphoria. Euphoria generates a riskless state of mind causing us to discount or overlook anything ‘bad’ or that questions the existing herd belief or course of actions. Those that do question the existing norm are ridiculed and seen as a threat to the majority view point. As markets and debt levels continued to increase rapidly prior to the GFC the herd were swept along with the flow. Anyone who dared question the capacity of markets and economies to handle these spiralling debt levels was treated with derision and ridiculed as a ‘nay sayer’ out to spoil the party. To quote from the article by Jonathon Mahler :
“ALL ECONOMIC BUBBLES begin with a fervent faith in the transformative potential of something. As the bubble inflates, demand grows and the optimism of the early evangelists becomes contagious, converting more believers and steamrollering scrutinizers and cynics. But at some point the momentum shifts. Economic reality quickly catches up with the pervasive overconfidence that first set the bubble aloft, and it bursts.
This was essentially the trajectory of the Tiger Bubble, only the boom was fueled not by a new technology or financial instrument but by an athlete who shattered almost every existing assumption about his sport. The expectation was that Woods would single-handedly alter the future of golf. Culturally, he would redeem the sport’s racist history, blot out its stuffy, country-club image and infuse it with Nike cool. Economically, he would give golf the stature of a major sport while raising the levels of fan participation in the game.”
To further facilitate the image that everything is rosy and the good times will roll on for-ever an ever increasing array of complex financial products are churned out by the financial wizards. Shrouded in secrecy, the creators of these products are touted as ‘market wizards’ who have discovered and created financial instruments that are too complex for the individual to understand but that we should invest in anyway because ‘everyone else is, and you don’t want to miss out on this wonderful opportunity”. This was essentially what happened with Tiger as he was kept away from the prying eyes of the public and a media image was created around him. Quoting again from the New York Times article;
The Tiger Bubble was kept afloat by a surging economy and a carefully constructed, zealously protected image of Woods himself. We watched him grow up on the golf course, his maturation evident in the changing tableaux on Sunday afternoons: the victory hug from his father giving way to the kiss from his wife, followed by the addition of a daughter and then a son. Off the course, he was a composite character created by the various commercials in which he starred. They supplemented our limited picture of the man, giving him a sense of humor (he walks across water to rescue his ball from a lily pad); whimsy (he bounces a golf ball on the face of his club while passing it behind his back and between his legs before smacking the ball in midair like a baseball); and even a touch of moral bite (“There are still courses in the U.S. I am not allowed to play because of the color of my skin”).
There then comes a time in the market when it is blatantly obvious that the bubble has burst, money has been lost, and the blame game begins. In the markets, the ill-advised and ill-informed ‘punters’ with nothing but stars in their eyes during the golden days as markets are rising and they appear to be making money are now the ones blaming everyone but themselves as the house of cards comes crashing down around them. When Tiger’s bubble popped, his far from perfect private life was exposed to the public. These issues had been ignored during the “bull market” of Tigers golden days.
WHEN A BUBBLE POPS, it instantly exposes the false assumptions that fueled its inflation. Tiger Woods didn’t suddenly create a new reality for golf when he drove his S.U.V. into a fire hydrant, but he did reveal some troubling indicators that had been easy to overlook while he was dominating the game.
What then follows are the attacks on corporate greed and the excessive lifestyles of some of the individuals involved. Investigations are undertaken, some offenders are charged, laws are ‘changed’, and claims are made that “all this will never happen again”.
The attack on corporate excess hit golf well before Woods’s image collapsed. Last year, Northern Trust, which received $1.6 billion in TARP funds, got a dressing down from congressmen for flying hundreds of guests to the Northern Trust Open in Los Angeles and treating them to several days of entertainment that included a concert by Earth, Wind and Fire. Sponsors were soon distancing themselves from their own tournaments — the Wachovia Championship was renamed the Quail Hollow Championship — and canceling giveaways like free cars to players who hit holes in one.
Then, at some time in the future, the whole cycle repeats itself, just as it has done throughout history – with new traders and investors, new products, new regulations, but the same old game, and everyone once againcaught up in the euphoria and expounding to anyone who will listen that “it’s different this time”.
What have you learned over the past few years in relation to the markets and your trading and investing decisions? How will you ensure that you will avoid those mistakes again next time?
The full article The Tiger Bubble can be accessed through the following link: