Behavioural Finance

Behavioural Finance

Finance is a field of economics. In turn, economics is a social science studying production, distribution and consumption of resources, goods and services. Alternatively, psychology is also a social science focusing on the mind and behaviour. A seemingly unlikely blend of these two disciplines creates the discipline of behavioural finance. Thus, behavioural finance combines financial theory and cognitive psychology to explain how people make decisions in the financial world, and how often these decisions end up being irrational.

Along these lines, behavioural finance shows that the human factor, particularly human psychology, influence investment decisions and even market outcomes. Behavioural finance emerged as an explanation as to why the efficient financial market theory fails to show the whole picture when it comes to investors' decisions and financial markets' fluctuations. The main argument in behavioural finance is that human beings are rational agents seeking to maximize wealth. However, in practice this is not always the case. Thus, human emotion and other psychological aspects explain why sometimes investment decisions appear rather irrational.

Moreover, conventional financial theories cannot explain all the decisions made, and psychology seems to play a role. Often it has been said that to be a successful investor, one needs to be the perfectly balanced individual between an emotional one and a completely unemotional one. For example, many investments fluctuate according to the market. If an investor is very emotional, he or she may sell their stocks and bonds ahead of time, losing money in the process, while if they just waited a while longer the price of the shares or commodities would go back up. Thus, behavioural finance looks at all these elements and attempts to reconcile and explain the anomalies or irregularities of financial and investing decisions.

Related aspects are sunk costs, cutting one's losses and risk tolerance. For example risk tolerance is a criterion often used by financial consultants and asset managers in choosing portfolios for their clients. However, risk tolerance is likewise a psychological concept and has often much to do with a person's personality and general outlook on life. Indeed, psychologists propose a theory, known as the The Big Five, as determinants of personality. Openness to novel experience is one of the determinants and it may be argued that it has much to do with optimism and pessimism, which in turn may be related to investor risk tolerance and risk aversion.

People often say that financiers marry psychologists, whether that is true or not remains highly debated, and also lays far beyond the scope of the present essay. However, finance, as a subject, can be married to psychology, and hence the emergence of behavioural finance. Nonetheless, behavioural finance incorporates elements from many other social sciences, such as sociology, political science and anthropology, resting on the the premise that financial fundamentals should not be viewed in isolation from the rest of the social world. Economics, from which finance is a derivative discipline, is, after all, likewise a social science.

Where the property is located is very important to determine real estate value. Image: Megan Jorgensen (Elena)

Alternatively, to look at a purely financial topic, let’s take the subprime mortgage crisis. The crisis shook the United States and the world, and many would argue pushed the world into an economic recession. Business cycle theory predicts economic recessions and expansions. Also, a subprime borrower is someone with a dubious credit history, or someone whose creditworthiness is under doubt. The human factor led many banks to lend money through mortgages to these subprime borrowers and the whole card castle collapsed one day, as it could be predicted that it would.

What is Finance in the Real World?

What is Finance in the Real World?

Finance is about getting capital, significant funds for large accomplishments. However, The Gospel of Wealth refers to a book and to mindset that wealthy people have a moral responsibility to give back to society. For instance, Carnegie has made many gifts to universities throughout the United States. Today’s notable billionaires, such as Bill Gates and Warren Buffet, are likewise famous philanthropists, giving much of their wealth away to those who most need it. The Bill and Melinda Gates Foundation fights poverty in developing countries and combats childhood diseases such as polio, while Warren Buffet has pledged most of his fortune.

My precious! Image: Megan Jorgensen (Elena)

Alternatively, Forbes is the publication which describes people’s net worth. Forbes also typically portrays how wealth was amassed, philanthropy when applicable, alma mater and family details about those lucky and gifted featured on Forbes greatest fortunes list. Interestingly enough, there are very few self-made women billionaires on the Forbes list, or in the world. In fact, most women billionaires in the world have inherited their tremendous wealth, although some have made their fortunes themselves. To avoid jumping to conclusions, that number remains on the rise

Search Engine Optimization Strategies

Search Engine Optimization Strategies

Today’s business world is competitive and attracting customers relies also on a strong online presence. To attract consumers to one’s Website, it remains imperative to focus on Search Engine Optimization or SEO. While some SEO mysteries remain elusive, the following article shows some of the strategies which seem conducive to attracting your target audience to your blog or Website. For many business owners, SEO has become part of their overall marketing strategy.

A serious looking woman. Image: Megan Jorgensen (Elena)

SEO generally includes writing a lot of content, filled with relevant keywords and with entries of at least three hundred words. Further, inbound links help with building higher ranking, and thus appearing at the top of Google’s search results. Inbound links are links on other Websites leading to your Website. Conversely, outbound links are links you place on your Website towards the Websites of others. Along these lines, some Websites feature a link exchange program, in which banners are exchanged. Often times, such Websites have a links page dedicated to featuring banners.

Further, a very important point to keep in mind is that SEO is dynamic, in the sense that strategies keep changing. Of course, some tips and tricks remain throughout time. For instance, sharing your content through Facebook, Google+, Pinterest and Twitter is likely to attract more visitors to your posts. Again, traffic is almost everything when it comes to Websites. In today’s world dominated by the Internet and social networking Websites, social media is prominent to say the least.

Looking in the other direction. Image: Megan Jorgensen (Elena)

Yet another term for SEO strategy is content marketing. The overwhelming competition in today’s Internet environment makes it almost impossible to rank first on keywords alone. Therefore, experts instead argue that it is better to focus on writing high-quality content. Writing a lot of content seems like a given to most, but it is not always easy. However advice on how to overcome writer’s block is abundant. Nonetheless, in today’s day and age whether you choose to call it search engine optimization or content marketing, one thing remains clear: in modern times, a strong online presence is key to a successful and lucrative business

Business Essay: Commerce and Sales

Business Essay: Commerce and Sales

Venture capital or business angels are very important to new startups. However, not all startups are likely to receive such financial capital and financing, since sophisticated, technological companies are usually prioritized. In fact, all business activities are divided into three main sectors, financing, operations and investing. A related subject, is the distribution of wealth in society. Thus, a relative minority holds the majority of financial resources. While ay political discussion is well beyond the scope of the present short paper, this is the system against which protested the protesters involved in Occupy Wall Street and We Are the 99%.

However, this is one side of the coin, the other being entrepreneurship. In free economies, such as the United States, Canada or Australia, to name a few, nothing is stopping potential entrepreneurs to found their own business. An alternative route to personal accomplishment is to invent something of value to customers and to patent it. Indeed, a study has shown that there was a relationship between patent registration and financing of firms through venture capital.

I understand – Unknown. Image: Elena

Further, as many a marketing professional would explain, a business proposition has to have value to the consumer. Furthermore, each product or service sold has its target audience. Along these lines, resources should be carefully managed and administered in such a way as to direct development, gearing it towards those customers more like to buy the goods and services. Hence, professional marketers maintain that one cannot create needs, but only shape wants.

And, of course, shaping wants should be crafted according to sales objectives. By the same token, this is one of the reasons why telemarketing often fails and why telemarketers are often perceived as annoying, to put it mildly and to say the least. Typical terms involved in the telemarketing industry (B2B, B2C or business to business and business to costumer or consumer; cold calling, leads, prospecting) make many cringe. Because if someone has absolutely no use for your product, then it will be extremely hard if not impossible sell your product to that person or to close the deal

Accounting Theory and Accounting Professionals

Accounting Theory and Accounting Professionals

Same old, safe bet – Amy Winehouse

As with most professions, accounting demands a lifelong process of honing one’s skills. While usually sufficient to land a job after graduating from university, in addition to mandatory work experience, a successful accountant will continue to participate in accounting continuing education, whether through symposia, conferences and seminars or continuing education programs; it is important to maintain one’s knowledge up to date. Perhaps the best word of advice in such a situation is not to give up.

Staircase to Heaven. Image: Elena

Certain facts may be said about all professions, not only accountants. Lifelong education and career development is important in most fields. Alternatively, many people believe that if they fail to advance, then they are receding. Why? Because other people around them are advancing. Moving forward may be achieved in many ways, but it is true that standing still when surrounding competitors are gaining ground leaves one behind even if one is staying in the same place.

Office job. Image: Elena

Accountants are very important persons in society, not only because of the accounting matters they conduct, such as filing taxes for individuals and corporations, but also for producing information for the general public, investors and shareholders. Indeed, financial accountants produce financial statements, documents without examining which it would be nearly impossible to conduct due diligence. To invest in a company, many potential investors want to know how well that company did, what are the earnings per share (EPS) and the dividends paid.

Why Study Accounting?

Accounting is a fascinating field, not only to study but also to work in. Further, successful students in accounting can choose from a multitude of career paths such as accountant, chief or senior accountant, controller or comptroller, and last but not least CFO (Chief Financial Officer). Accountants have many duties, tasks and responsibilities such as payroll cycle, calculation of profits and taxes, supervising other accounting staff, developing junior members and implementing rulebooks with GAAP or SEC regulations.

GAAP are Generally Accepted Accounting Principles published for public accounting firms. All public firms, and most private entities must adhere to GAAP regulations which are like law. Lately, Canadian GAAP is undergoing a transformation to merge with, and conform to, US GAAP. Alternatively, the SEC is the Securities and Exchange Commission regulating security trading and finance in the the United States. Naturally, to practice in the accounting or finance field one  must be certified by, and in good standing with, one of the many orders, associations or commissions regulating the corresponding professions.