Finance with fun – the humorous side of behavioral finance

Do you remember the anchor effect or loss aversion? Very useful indicators, no question. But let’s take a look at the lesser-known, more humorous indicators of behavioral finance. After all, it’s not just quarterly figures and annual financial statements, the stock market can also be quite entertaining. These are my top 3 fun indicators for the humorous investor:

#1 Wine-beer ratio

Yes, you read that right! The “wine-to-beer ratio” monitors wine sales in relation to beer sales. The underlying theory is that an increase in wine consumption relative to beer sales could indicate a more optimistic mood among consumers and, consequently, a higher appetite for investment risk. Why might this be the case? Well, it is generally accepted that wine is often seen as the more ‘posh’ or ‘sophisticated’ drink, whereas beer is seen as the more down-to-earth and everyday drink. In good economic times, when people are more willing to spend money, wine consumption could therefore increase. Conversely, in uncertain economic times, beer consumption might increase as people tend to pull back and become more conservative. So, next time you’re deciding whether to have a glass of wine or a beer, remember that you’re not just making a drink choice, you may also be getting an insight into market sentiment.

#2 Men′s Underwear Index

The “Men′s Underwear Index” was introduced by former US Federal Reserve Chairman Alan Greenspan and is based on the theory that the sales figures for men′s underwear could be a reliable indicator of the general economic situation. Why? Because underwear is a basic necessity and men tend to replace their underwear regularly, regardless of their financial situation. However, in tough economic times, when money is tight, men might tend to wear their underwear a little longer and delay buying new underwear. A decline in sales of men’s underwear could therefore indicate an economic slowdown. In contrast, rising sales of men’s underwear could indicate an economic recovery or expansion, as this is a sign that consumers have enough money to increase even their most everyday spending.

Although the “Men′s Underwear Index” is certainly not a reliable or scientifically recognized indicator, it does show us how everyday buying habits and consumer trends can provide insight into the larger economic processes. So the next time you buy underwear, you might not only think about your comfort, but also about the economic outlook.

#3 Skirt length theory

The “skirt length theory” is an economic indicator that links the length of women’s skirts to the general economic situation. This theory was created in 1926 by the American economist George Taylor and states that in times of economic prosperity, women’s skirts tend to become shorter, while in difficult economic times, skirts tend to become longer. Why? The idea behind this is that in good economic times there is more optimism and freedom of movement, which is reflected in fashion, particularly in the length of skirts. In uncertain times, on the other hand, people return to more conservative fashion trends, which is reflected in longer skirts. An example of this is the “Roaring Twenties” era, a time of economic boom after the First World War, during which women’s skirts became considerably shorter. This contrasts with the Great Depression in the 1930s, when skirts became longer again. Although it’s a humorous idea, and certainly not a reliable or scientifically recognized indicator, it does show us that sometimes the simplest things – like the length of a skirt – can be a mirror of the complex economic world. So, next time you’re out on the town, keep your eyes peeled.

To summarize, psychology plays a bigger role in the financial world than we often assume. The power of moods, collective thought patterns and even fashion trends should not be underestimated. Whether it’s the wine to beer ratio, the Men′s Underwear Index or the length of skirts, all of these factors can offer us a humorous insight into the stock market.

Of course, the obligatory disclaimer should not be missing at this point: Please note that these humorous indicators should not be the sole basis for your investment strategy. But they do offer an amusing insight into the often unconscious behavior of investors and how it can influence the market.

With this in mind, I wish you all a great summer and remember to drink to the stock market at the next toast – you might be able to make some valuable investment decisions!

Yours, Mark Stock©

Mark Stock is a member of the Point Capital editorial team. “I am a stock market enthusiast and am passionate about economic history. I have been following the ups and downs of the markets for years and, of course, invest myself – preferably in shares. So my name says it all. Every month, I take up what I consider to be an exciting topic. And since the focus is on the content and not on me personally, I write under a pseudonym.”