Money is mathsy. It has to be. We take our finances seriously. Calculations need to be precise. Decimal points matter. But it would be a mistake to think it ends there.
Our brains aren’t computers. Our financial dreams aren’t equations or balance sheets. We don’t just think about them, we feel them. Managing money is a marriage of heart and head, and we do it best when science and sentiment are in harmony.
That means both working hard and playing hard. Saving up and treating ourselves. Planning well into the future and living in the moment.
Narrative and numbers
One of the great protagonists of the art of marrying maths with emotion in matters of money is Prof. Aswath Damodaran. The so-called “Jedi of Valuations” teaches at New York University’s Stern School of Business. His book, Narrative and Numbers: The Value of Stories in Business, has changed the way many MBA students and investors alike go about valuing a business.
An accountant by training, Damodaran admits, “I am naturally drawn to numbers but one of the ironies of working with numbers is that the more I work with them, the more sceptical I become about purely number-driven arguments.”
Damodaran teaches that every number needs a credible story attached to it. When students present a number to him, he wants to know why. “Tell me a story,” he often says.
And for good reason. We are a storytelling species. In fact, Yuval Noah Harari, author of bestseller Sapiens: A Brief History of Humankind, argues that we could be called “homo narratus” rather than “homo sapiens”. That is, that “storytelling person” captures us better than “thinking person”.
The appropriately named author Will Storr, who wrote The Science of Storytelling, puts it even more pithily: “Story is what brain does”. We are wired to think in story format, to tell stories and to listen to stories. It is in our DNA. We have always shared stories, be it around a fire or at the dinner table.
Stories capture and keep our attention. They delight, inform, encourage and inspire. It is critical that we embrace our emotional, storytelling selves to think properly about money.
Phantastic objects
Some of the most intriguing work on this topic has been done by Prof. David Tuckett. The Englishman comes from a psychoanalysis background and applies this to investment decision-making. The director of the Centre for the Study of Decision-Making Uncertainty at University College London has blazed the trail for what we now call emotional finance.
Tuckett captures the crux of this with the term “phantastic object”. This is sort of a financial fantasy. An idealised story we tell ourselves about some or other way to spend or invest our money. As Tuckett and co-author Richard Taffler put it, a phantastic object refers to an individual’s “deepest desires to have exactly what she wants exactly when she wants it” (Tuckett and Taffler, 2008).
So the “object” part may have some physical representation. For example, that watch or car you’re dreaming of buying. But the object is the fantasy, rather than the underlying physical object. So, a dream holiday or an investment opportunity may well be your phantastic object.
As Tuckett says, your phantastic object “could be gold or a girlfriend”. Hardly something with a value we can calculate mathematically!
The phantastic object tends to be relatable for all of us. Very often the thing we are saving up for or that share we want exposure to is our phantastic object. We may not have done a discounted cash flow analysis or consulted our financial advisor, but we know the feeling of just really wanting that holiday in Venice or being desperate to buy into that company we believe in.
And that’s okay. The trick is knowing how to harness our desires wisely. How to make our dreams come true within the confines of our budgets.
Caveat investor
Damodaran adds an important warning. “We relate to and remember stories better than we do numbers, but storytelling can lead us into fantasyland quickly.”
We’ve all experienced this. A phantastic object becomes an obsession and we chase it almost regardless of anything else. Emotions can take over, relegating numbers to the background. This can lead to buyer’s remorse – that exercise machine that sits gathering dust or the fancy shoes we wear once a year.
This brings us to an important way to understand bubbles and crashes. When emotional excess shoves sober planning aside. A primary example is the great “tulip mania” in the 1630s. In this instance, the phantastic object was the humble tulip bulb. There are competing explanations for what sparked the speculative bubble, but by 1634 a tulip could trade at multiples of the value of an average house.
As Smithsonian Magazine puts it, “A bulb named Semper Augustus, notable for its flame-like white and red petals, sold for more than the cost of a mansion in a fashionable Amsterdam neighbourhood, complete with coach and garden. As the tulip market grew, speculation exploded.”
It goes on, “Everyone from the wealthiest merchants to the poorest chimney sweeps jumped into the tulip fray, buying bulbs at high prices and selling them for even more. Companies formed just to deal with the tulip trade, which reached a fever pitch in late 1636. But by February 1637, the bottom fell out of the market.” Logic caught up with popular sentiment.
Within the space of a few years, tulips had rocketed to the price of a mansion and then fallen to something resembling an equilibrium. In other words, their phantasy element became untethered from the logical element, before logic caught up.
It is easy to be critical in hindsight. How could anyone pay the same price for a flower – however beautiful – and a house? Such is the power of emotion. And it’s hardly a thing of the past, either.
These instances of what former Chairman of the Federal Reserve Alan Greenspan calls “irrational exuberance”. The great economist John Maynard Keynes spoke about “animal spirits”. And these things happen more often than we’d like to admit.
The so-called dot-com bubble of the 1990s is a major example that happened in many of our lifetimes. The numbers suggested that internet businesses were a good investment. But the euphoria suggested they were magic beans.
Bernie Madoff, now notorious for running the largest ever Ponzi scheme, was particularly skilled at enticing people away from cool heads and towards hot emotions.
None of us are immune to over-emphasising emotion. However, being aware of this is the first step to making sure we manage money better.
Balance
This suggests a conundrum. If we tie ourselves too strictly to the quantifiable part of saving and investing, we are sure to miss out on good investments – and good times. Nobody wants to be the stick in the mud who gets left behind. But, on the other extreme, we don’t want to be that poor soul left holding a bag of tulips the day after the tulip mania recedes.
The solution lies in the old ideal of balance. Without emotion, a price is just a number. And without numbers, emotions can lead us astray. People who manage their money well embrace the synergies and the tensions. We work hard, evaluate our spending carefully, and plan ahead. We also enjoy the fruits of our work, explore new things, and treat ourselves now and then.
Shyft helps to enable balance in multiple ways. For starters, Shyft lets you hold your wealth in multiple currencies. Gone are the days when living in South Africa meant your money was all in rands. Our wallets let you hold multiple currencies, whether you’re preparing for that trip to Paris or hedging against currency fluctuations. Shyft offers the cheapest forex rates in the market – anytime, anywhere. Whatever balance means for you, Shyft lets you find it among major currencies of the world: ZAR, USD, EUR, GBP and AUD.
We also make it simple to become a global investor. Shyft’s functionality lets you buy not just individual shares but exchange-traded funds (ETF) pre-packaged with diverse bundles of assets to build your portfolio.
Payments are also made easy with Shyft. We empower you to make free, instant Shyft-to-Shyft transfers anywhere in the world. You’re also free to send and receive global payments to and from international banks at a flat rate in the currency of your choice – no matter who you bank with.
Shyft provides cards, too. Be it physical or virtual cards, on Shyft you can create these instantly with no paperwork. Tapping for tapas in Spain or topping up the kids’ pocket money, we’ve got the card for you.
In sum, balance is best. But it isn’t guaranteed. It takes discipline, planning and the right tools for the job. Like everything worthwhile, the benefits of balance in your personal finances are worth the rewards. That is what drives us to make Shyft a comprehensive set of tools to help you find balance. Global and local. Today and tomorrow. Discipline and delight. Shyft is here to make it possible.
