How Do You Perceive Value?

There are 2 components to value at work when making a decision to buy a product or service. They are summed up as how you feel and what you think. The battle between these elements is what determines how and what you buy. This battle can take place consciously but typically is very automatic and occurs “underground” or unconsciously.


Have you noticed that certain products or services attract people constantly even though they seem ridiculously priced? You may wonder why so many people are “into” this product. One of the key concepts that may arise is “I have a good experience”. What does this mean? The senses are elevated, bringing a higher state of joy or a better feeling than from a competitors’ product. How many advertisements have you seen that use the words “Oh, what a feeling!” or “It just feels right!”? If your product heightens someone’s senses, they will have a positive experience and want to buy the product regardless of the cost. This is the holy grail for packaging, advertising and branding. The other aspect of the feeling equation is covering the emotional state in general. Do I feel at ease buying this product? Do I feel taken care of? Do I feel more popular, more sophisticated, more self-deserving, worthy or loved if I have this product? If something makes you feel better in these ways, it will be a powerful incentive to purchase it.

The Logic

The thinking side of the equation asks the questions like “what am I getting for what I am paying?” This concept wants something it can analyze and measure – usually dollars and cents expended versus dollars and cents received. Dollars and cents for what? Some useful outcome that can be measured as a cost savings, higher output, time savings, longer life span (which is savings from buying less frequently), less repairs etc. This logic can be expanded to cover costs over the lifetime of the product such as less  hassles of repairs. Strangely enough, underlying this analysis is the same notion as the feeling state when it comes to the questions of feeling taken care of, sophisticated, self-deserving, worthy etc. The logical mind equates the questions with “I am better off because I saved more money, which equates to being better off or work more easily toward being better off.”

The Battle

These two concepts play out whenever a decision occurs to buy a product. Which side wins? It depends on who the person is, but judging by how the “feeling products” are selling versus the “thinking products”, the feeling side seems to win more often. Look at Starbucks coffee versus McDonalds coffee, the Apple iPhone versus other cellular phones, Coca-Cola versus another type of cola, etc. If the logic wins out, advertising with the emphasis on feeling would not do too well, and branding would not be very valuable, unless it is consistent with the logic.

The ideal scenario is to have both the feeling and thinking side in agreement when a product is purchased, but this does not occur as often as one side being emphasized versus the other. The common ground of feeling worthy, loved, deserving, popular and so on may be the secret to understanding the different methods of ascertaining how people make purchase decisions.


What Is Emotional Spending and Saving?

How you use your money is a reflection of your thoughts and emotions. Another way to say this is that you handle your money according to how you think and how you feel. When your thoughts and emotions are unbalanced or unhealthy, this will show up as unbalanced spending, addictive behaviour or irrational decision making.

How Does This Work?

If you have an emotional issue or a negative thoughtform, and you don’t know to resolve it, money will be used to “paper over” the issue until it goes into your subconscious mind – or you are not thinking or feeling it any more. An example is if you believe you are unworthy of having a good job, you will struggle along in your present job. You may be technically making enough money to make ends meet and to enjoy some of your time, but this thinking makes you feel off. You want to feel better at a given moment in time, so you buy yourself a “treat”. There is nothing wrong with doing this as long as the intentions are clear. If you buy yourself a treat all of the time instead of “fixing” the negative emotion, you will get into the habit of buying things all of the time. It may get to the point that you are not even enjoying the things you are buying – you are simply using the shopping as pain relief. If this happens often, you will start to run out of money and this will cause other issues.

What Is this Addictive Behaviour?

I use the word “addictive” to describe this situation because the pattern is similar to a drug or alcohol addiction. A trauma happens resulting in a negative emotion that cannot be resolved. The emotion stays in the body and resurfaces later on, causing negative feelings. Alcohol is consumed to soothe anger. Since the alcohol makes you feel better, it is consumed whenever the negative emotion comes up. This becomes a habit, and the alcohol is consumed regularly – and it becomes an association like “I am angry and I want to feel better.” The alcohol starts to make you ill because too much alcohol stresses your body and you become “an alcoholic” when you don’t have another way to feel better. Meanwhile, the original trauma and anger are still residing in the body.

For the alcoholic, the booze is the “hit” that makes you feel better. For money, buying things that gratify represents the “hit”. You will know it is a hit because the euphoria wears off quickly and the problem is still there the next day. It may even look worse because you feel guilty at having gotten drunk, stoned or broke, and still the bad feelings persist.

How Do I Resolve this?

Money is often spent unconsciously – this means that money is spent in reaction to a feeling or thought rather than a conscious decision. The solution involves bringing the unconscious into the conscious so you can change the reaction. How do you do this?

When you buy things, write down what you purchase so you can see it. For frequent and small purchases, as well as for infrequent purchases, recording the transactions will allow you to see how much you spend over a period of time and whether it is reasonable or not. You will likely forget how many times you made frequent or rare purchases.

Pay in cash. The act of taking cash out of your bank account, counting it at that time, holding the money in your hand and counting it when you buy something forces you to ask yourself why you are doing a transaction. Since it is now conscious, the cold light of reason or observation may change your decision. Paying with a debit card, credit card or other electronic means does not register in your conscious mind the same way and the “check and balance” of your mind is typically bypassed.

Ask yourself how you are feeling when you decide to buy something. If you are craving something, are moody, irritated, frustrated or angry, you are likely to buy more.  I speculate that you are forced to line up and wait for purchases or are put on hold when buying on the telephone to get you frustrated for this reason.

Don’t shop hungry, thirsty, distracted or emotional. If you are not happy or satisfied when you enter a store or web site, you are bound to want to feel good instantly, and this means buying things you really don’t need.

Man Versus Society

Unfortunately, handling money wisely and shopping because it is the best decision to make is discouraged. Consuming at all costs and for all reasons is encouraged. You are never asked if you need the item you are buying, whether you can afford it, whether you have better things to do with your money, whether you should maybe not shop at all or whether you should buy at a later time. The siren call of shopping as much as you can right now with debt if necessary is what you will constantly face from society. Since nobody will ask the questions, you will have to ask them yourself and provide your own balance to the insanity of spending blindly.

Emotional Saving

Is spending money bad? No, spending and saving are decisions that can be made for good or bad reasons. Can someone save too much money? The answer is a resounding yes. The frugal person may have their own demons to deal with which are: I don’t have enough money, I may need the money tomorrow, I want to make sure I survive etc. This person may never spend when they should be buying things. This person can also be hungry, thirsty, distracted or emotional and can make decisions to never shop because that keeping their money makes them feel better.


The key is all about balance. If you can balance your thought patterns and emotional states, your bank account will also be balanced. If you are buying things because they are valuable to you and you are getting a lot of joy from them, than these things are likely worthwhile. You will also have to dig deeply into where the feelings of lack, guilt, shame, rage and frustration come from. Once you realize that you are loveable, adequate, powerful and worthy, many of these addictions simply will not exist.

Recognizing Greed in Investing

The Initial Gamble

When people invest, they typically do not expect to make 1,000% or 10,000% returns on their investment. In the case of penny stocks, a new growth industry, a start-up, a massive recovery situation, a crisis, pure gambling or a brand new investment space, these returns are possible. The psychology of an investor may start out as “I will put a bit of money in this and see what happens.” As the returns start to accelerate, the thinking may not change much until the expectations shift. This shift happens when the thinking becomes “I didn’t expect much from this investment. I treated it more as a gamble, but now I have made 3 times my money and there is a real possibility that I can make more.” At the same time, the returns may be accelerating because more people are catching on to the merits of this investment and are buying more and more of it. Ever wonder why a chart of an investment becomes “parabolic”? Parabolic refers to a mathematical curve where the prices are moving up exponentially with time – or the rate of return is moving up faster and faster. This would translate into more people getting involved with the investment and more opinions about it.

Tug of War

As the game speeds up, at first not much has changed in the strategy. Inevitably, people will start taking profits and the charts will start to get volatile. There is a group of buyers who see giant upside in the investment and so will keep buying on dips. There is a second group of people who have made big gains and are start to sell because they either feel they have made enough money, or are seeing some fundamental reason to sell. In some cases, there may be another lucrative investment and money is transferred to that instead. The volatility represents the tug of war between the opinions of both groups as the investment accelerates in price.

Something to Lose

Up until now, investors may have downplayed expectations and not known how high the return could be, or may have put stop losses in place to guard against problems. Since they had “nothing to lose” there was not much attention given to the investment. Now that the returns have increased multiple times, there is something to lose. The upside and downside risks are not as clear as they were in the beginning. In the rare case that you are buying an investment and know when you will sell it, you can ride out the volatility knowing that you have a definite target to act upon. In most cases, the future is highly unknown and the selling price is more along the lines of “we will see what happens”.

Greed and Expectations

Where does the greed come in? It starts when the expectations flip from “I made 500% from nothing” to “I don’t want to lose the 500% gains”. At the same time, the possibility of 5,000% gains is also there. There may be a tug of war inside the investor to either hold or sell on dips. Pure greed may also be found where an investor “doubles down” on big gains, big losses or borrows money to invest after a big rise. The defensive idea is out the window and the investor is swinging for the fences – thinking about retirement, record returns, bragging rights or life changing gains. While these outcomes are possible, the balancing act of the likelihood of returns going up or down is skewed towards either going “all in” or getting very twitchy at the volatility and selling when the fear gets too high as opposed to the “buy and hold” and “ride out the price swings” mantras.

Collective Greed

The individual greed is summed up as per the prior paragraph, but collective greed is very similar. Volatility usually precedes changes in direction. Other evidence is large news coverage of the investment, or people who do not know about the investment who want to get in on it. This is where the “taxi cab driver or shoe shiner giving you financial advice” expression comes into play. This is translated as “if someone who does not normally invest, or who does not know a lot about an investment is giving you advice, it is time to get out.”

The Defence

How do you beat the greed? It is helpful to study manias by being in them and watching the emotional pulse of people through the stages of “It is only a small amount of money – why not?” to “hey, I have made some big gains” to “these are serious gains, it is time to get greedy”, and then “I am going all in” and then finally “the whole thing crashed and I lost my money, or I barely got out.” After going through a couple of these, you start to check your emotions and hedge against being too optimistic or too negative and being swept up in the emotional tide that manifests itself as volatility in the price charts. Another key to remember is that the media and commentators are a reflection of individual psychology. When times are good, nothing can go wrong and all of the positives are talked about. When times are bad, everything is wrong and all of the negatives are talked about. Neither of these views is expressing the whole story, so it is up to the investor to balance out the missing pieces. These are the greed and fear states that are referred to many legendary traders and investors. Nimble traders will identify these “switch points” and move in and out of the market. Disciplined investors will ride out the storm and sell at a later date. Other people may take some profits and retain their capital instead of swinging for the home run. Which option depends on your knowledge or conviction for the investment, discipline in trading and experience with manias.

Is Cancelling NAFTA Bad for Canada?

The spectre of NAFTA being cancelled is on many people’s minds since the election of President Donald Trump. Washington has pulled out of the TPP and wants a better deal for the U.S. in the NAFTA agreement. The recent possible tariffs coming from the Trump administration is also heightening trade concerns. Is cancelling NAFTA a bad thing for Canada? There are 2 ways to examine this question.

The Current State

The first approach is looking at how things currently are and what is likely to happen using this assumption. Canada is the U.S.’s second largest trading partner and the U.S. is Canada’s largest trading partner by a large margin. The U.S. is Canada’s closest trading partner by physical location. Much of the infrastructure that is already in place caters to shipping goods across the Canada-U.S. border seamlessly – bridges, railways, sea ports, shared production facilities etc. The culture of the U.S. is similar enough to Canada that doing trade is fairly easy. There are no language barriers, religion barriers, or culture barriers relative to other countries. Our currencies are closely aligned, making trade easier in terms of financing, terms of payment and currency exchange. It is fairly easy to obtain U.S. dollars anywhere in Canada. Comparing this to the Japanese Yen shows the contrast. Lastly, the assumption is that the U.S. will protect Canada militarily so Canada can focus on producing other goods.

Using this assumption, if NAFTA is cancelled, Canada may be a big loser in terms of trade. The fears are that Canada’s goods will not be exported and economic activity will suffer. We do not have any other trading partners as large or physically close by as the U.S. The infrastructure and financing advantages also do not exist with any countries. Even Mexico who is part of NAFTA has a different currency, language, culture and priorities than the U.S. with respect to trade. Cancelling NAFTA looks like a disaster.

What are the disadvantages of NAFTA or trade deals in general? First, trade deals encourage specialization of industries in the lowest cost / highest benefit production of goods and services. All other production is reduced and or ceased. If you want to develop a new industry, you will have a small chance of success since your trading partners may dominate the industry or limit you from competing. If this is not the case, you may develop the industry on someone else’s terms. Starting a business without free reign to experiment usually does not succeed because experimentation is necessary to optimize the market demand, efficiency and need for a given product. These limitations create a volatile economy based on a handful of sectors. In Canada, this means energy, commodities, banking and real estate. The second issue is negotiating power. Trade deals limit what you can negotiate after the deal is made, unless the entire deal is re-negotiated, which is what is happening today with NAFTA. This limits diversification of trading partners and new opportunities which may be present. Sometimes even within an established industry, different market conditions that would normally be taken advantage of would not be available because of the terms of the trade in a deal. As an example, the price of oil is fixed at $50 per barrel between two countries. The price of oil rises to $100 per barrel on world markets, but the seller will not benefit from this since they are selling the oil at $50. Should the price drop to $20, the seller would benefit, but then the question of “how often does this happen and is it worthwhile?” is going to come up. The last disadvantage is the negotiation itself. If you are negotiating with a much bigger, stronger trading partner, you will likely need them more than they need you. This means that they can argue for better terms of trade and if you want to make the deal, you will have to sacrifice more than you may realize. In the case of Canada and the U.S., the U.S. has a more developed economy than Canada, and much more influence on the world stage. If the U.S. wants to dump Canada and trade with someone else, they can do it more easily than Canada can for the U.S. This gives the U.S. more negotiating options than Canada – at least at the present time. The U.S. can offer more products for sale, more options for trade and more customized terms. Let’s say that Canada went to a trade negotiation and said “I will offer technology expertise.” Would that be possible? Not likely, but Canada can offer mining expertise. The U.S. can offer both.

The Opportunity

The second approach is assuming that cancelling NAFTA can be an opportunity, and changes can be made to benefit Canada more so than the current agreement. Why? Trade can be opened up to every country in the world and with open terms. Since the competition is much greater if all countries are available for trade, the opportunities may be greater. The flip side is that more competition may make it harder to trade for an advantage due to cheaper labour or better quality that may be available in other countries.

Cancelling NAFTA would make Canada more independent because we cannot rely on a specific trading partner to buy our goods. This will create more resourcefulness and entrepreneurialism among Canadians. When people have to find a way to survive, there is more effort expended. This effort will create more diversification among industries since we no longer can afford to specialize in certain sectors.

This scenario has started to play out with Canada negotiating more deals with Europe and Asia. Canadian firms have global expertise in certain sectors which gives them an advantage when creating terms of trade.

Is Inflation Returning to Canada?

Inflation comes from increases in the cost of labour, materials, production (overhead), shipping, as well as borrowing costs. The last factor is a big part of inflation since interest costs are embedded in practically every product or service created, and this cost must be passed on to consumers via inflation (price increases) or taxes.

The cost of labour has not been a big factor for many years due to stagnant wages and outsourcing of jobs to cheaper locales. Recently, there are movements to raise the minimum wage in many states of the United States and provinces of Canada. These wage increases would mean double digit increases of wages in a short span of time. Many of the lower paying jobs are paying minimum wage, so this effect will be significant. This effect will be tempered by automation and cutting of hours and benefits, but automation will mean large capital costs upfront and if hours are cut, the work has to get done by someone being paid a higher wage eventually. This translates into an inflation “bump” followed by an adjustment period for employers to find ways of regaining profitability after the initial wage shock.

On the materials side, commodity prices have been subdued since 2008, but there are signs that materials prices are coming back up. Energy prices have hit multi-year highs for crude oil. Base metals are beginning to more higher as well as agriculture and foodstuffs. The costs of shipping these goods have also been in the tank for about 10 years but the shipping prices are also making a comeback as evidenced by the Baltic Dry index. The CPI (Consumer Price Index) numbers have risen slightly but are not showing signs of persistence yet. The PPI (Producer Price Index) numbers however, are beginning to make larger increases.

On the interest rate front, the Federal Reserve and Bank of Canada are both raising interest rates slowly. Their actions are relatively benign in themselves, but the bond market sets the longer term interest rates. The 10 year Treasury curve is on an uptrend, which is a sign of higher rates to come as well. Aside from higher consumer debt costs, there is also the issue of higher corporate debt and government debt payments. All of these forms of debt will translate into higher prices for private and public services since virtually every government and large corporation has debt. Government debt translates into higher taxes, and corporate debt used to buy back shares and invest in new capital will translate into higher prices. This may become a self-fulfilling prophecy, as higher debt costs mean higher prices, and higher prices will mean higher input prices for labour and materials, which means higher inflation readings, which means higher interest rates, and so on.

Adding these components together, inflation may be coming back to Canada which will mean a different landscape from the last 10 years. It remains to be seen whether these early signals are a manifestation of a larger trend or a false alarm. There have been indicators in the past pointing to higher inflation that did not materialize.

Is Bitcoin The De Facto Reserve Cryptocurrency?

What is a reserve currency? This is the currency in which all other currencies are standardized against, and this measure is used for global trade, asset valuation and account settlement. The current reserve currency is the U.S. dollar since it was the strongest currency after World War 2. The strength of the currency was based on its trade position, political influence, military might, resources available and liquidity / recognition in the investment world.

In the cryptocurrency world, Bitcoin serves this function as other cryptocurrencies are converted into Bitcoin to access most exchanges. Since Bitcoin has the brand recognition of being the first known cryptocurrency, it has the advantage of breaking milestones first. Bitcoin was the largest cryptocurrency by market cap at the time of writing (January 2018), the first coin to be created in 2009 and the first currency to be utilized for futures trading around the world. Bitcoin is also the first decentralized currency in recent time, as there have been digital and electronic currencies created before and after Bitcoin that are not decentralized.

Do all of these “firsts” mean that Bitcoin can be called a reserve cryptocurrency? The short answer is not really, but treating Bitcoin as a reserve currency is very educational in showing its role in the alternate coin space. People say that Bitcoin has no value, its earnings are not measurable and therefore it is a Ponzi scheme or a fraud. The key to Bitcoin versus other coins is the access that it has to exchanges, fiat currencies and payment systems. It is too early to tell whether Bitcoin will retain this status as an access currency, or whether it will be replaced by a coin with better technology, marketing or usefulness.

Some alternate coins can have value derived from what uses they have and how much money they can save in business dealings – like smart contracts, cheaper payment systems or making processes more efficient. The savings translates into value by needing to use the coin or its network in order to achieve the savings. An example would be if you use a paper based accounting system which costs $5 to collect money from each customer – whereas an online solution might cost $2 per customer. In order to realize the $3 savings, you would need to have access to the internet, which means the internet provider may obtain the savings as their profit. Multiply $3 per person by 1 million customers and you get $3 million in value. In the case of a cryptocurrency, you would divide this value created by the amount of coins available, and you would get a price per coin. If there are 500,000 coins in supply, this translates into a value of $6 per coin.

How does this relate into a reserve cryptocurrency? For all of these other coins that exist, access to them will be made possible by using Bitcoin. Therefore the value that all of these coins create will be reflected in the trading volume of bitcoins. Does this make any sense? In the case of a reserve currency, even if 2 countries engage in trade that has nothing to do with this currency, they have to use the reserve currency to settle their trade. If South Africa is buying oil from Iran, they would do this deal in US dollars even though the US is not involved in it. If you were to issue a coin that buys and sells ebooks, it would be translated into Bitcoin for the coin to be useful for the masses.

Time will tell whether Bitcoin will keep the role of reserve cryptocurrency in the future, but in the present, it seems to be playing out.

The Stages of a Market Mania

What is a mania? It is defined as mental illness characterized by great excitement, euphoria, delusions and overactivity. In investing, this translates into investment decisions being driven by fear and greed without being tempered with analysis, reason or balance of risk and reward outcomes. The mania is usually running parallel with the business development of the product, but timing can sometimes run askew.

The late 90’s technology .com boom and today’s cryptocurrency boom are two examples of how a mania operates in real time. These two events will be highlighted with each stage in this article.

The Idea Stage

The first stage of a mania starts out with a great idea. The idea is not known to many people yet, but the potential for profits are huge. This is usually translated as unlimited profit, since “something like this has never been done before”. The internet was one such case. People using the paper systems of the time were skeptical as “how can the internet replace such a familiar and entrenched system?” The backbone of the idea begins to get built. This translated into the modems, servers, software and web sites needed to get the idea into something tangible. Investments in the idea stage start off lackluster and made by people “in the know”. In the case, it may be the visionaries and people working on the project.

In the cryptocurrency world, the same question is being asked: How can a piece of crypto code replace our monetary system, contract system and payment systems?

The Possibilities

The first web sites were crude, limited, slow and annoying. The skeptics would look at the words “information superhighway” that the visionaries were spouting and saying “how can this really be that useful?” The forgotten element here is that ideas start out at their worst, and then evolve into something better and better. This sometimes happens due to better technology, more scale and cheaper costs, better applications for the product in question, or more familiarity with the product combined with great marketing. On the investment side, the early adopters are getting in, but there is no euphoria and astronomical returns yet. In some cases, investments have made decent returns, but not enough to sway the masses into jumping in. This is analogous to the slow internet connections of the 1990’s, internet sites crashing or information being incorrect on search engines. In the cryptocurrency world, it is being witnessed by high mining costs for coins, slow transaction times and hacking or theft of accounts.

The Acceleration

Word starts to get out that this internet and “.com” is the hot new thing. The products and tangibility is being constructed, but due to the massive scale involved, the cost and time expended would be massive before everyone is using it. The investment aspect of the equation starts to get ahead of the business development since markets discount the potential of a business with the price of the investment. The euphoria is starting to materialize, but only among the early adopters. This is happening in the cryptocurrency world with the explosion of new “altcoins”, and the large media press that the space is getting.

The Euphoria

This stage is dominated by the parabolic returns and potential that the internet offers. Not much thought is given to the implementation or problems because “the returns are huge nd I don’y want to miss out”. The words “irrational exuberance” and “mania” begin to become common as people are buying due to sheer greed. Downside risks and negativity and largely ignored. Symptoms of the mania include: Any company having .com in its name is red hot, analysis is thrown out the window in favour of optics, the investment knowledge is getting less and less apparent among new entrants, expectations for 10 or 100 bagger returns are common and few people actually know how the product works or does not work. This has played out in the cryptocurrency world with the stellar returns of late 2017 and the incidents of company shares popping hundreds of percentage points by using “blockchain” in their name. There are also “reverse takeover offers” where shell companies that are listed on an exchange but are dormant have their names changed to something involving blockchain, and the shares are suddenly actively traded.

The Crash and Burn

The business scene for the new product is changing, but not nearly as quickly as the investment scene is changing. Eventually, a switch in mindset appears and a huge selling spree begins. Volatility is massive, and many “weak hands” and wiped out of the market. Suddenly, analysis is being used again to justify that these companies have no value or are “overvalued”. The fear spreads and prices accelerate downward. Companies who do not have earnings and who are surviving on hype and future prospects are blown out. The incidents of fraud and scams increasing to take advantage of the greed are exposed, causing more fear and selling off of securities. The businesses who have the money are quietly investing in the new product, but the rate of progress slows down because the new product is “an ugly word” unless the profits are demonstrated convincingly. This is starting to happen in the cryptocurrency world with the folding of lending schemes using cryptocurrencies and higher incidents of the theft of coins. Some of the marginal coins are crashing in value due to their speculative nature.

The Survivors

In this stage, the investment landscape is charred with stories of losses and bad experiences. Meanwhile, the great idea is coming into tangibility and for businesses that use it, it is a boom. It starts becoming implemented in day to day activities. The product starts to become the standard and the visionaries are quoted in saying that “the information superhighway” is real. The average user notices an improvement in the product and it starts mass adoption.  The businesses who had a real profit strategy take a hit during the crash and burn stage, but if they have the cash to survive, they make it to the next wave. This has not happened in the cryptocurrency world as of yet. The expected survivors are those that have a tangible business case and corporate backing – but it remains to be seen which companies and coins these will be.

The Next Wave – Business Catches Up to the Hype

In this stage, the new product is the standard and the profits are becoming obvious. The business case is now based on earnings and scale rather than the idea. A second investment wave appears starting with these survivors and extending to another early stage mania. The next stage was characterized by social media companies, search engines and online shopping which are all derivatives of the original product – the internet.

The Conclusion

Manias work in a pattern which plays out in a similar fashion over time. Once one recognizes the stages and the thinking process at each one, it becomes easier to understand what is going on and the investment decisions become clearer.