Hooked on the first number

#149 - what's happened to CSK? 😓

Hi there,

Quite the 2 weeks - in the world and in my world. We’ve seen the rollercoaster ride of Trump’s tariffs, throwing the news cycle into disarray. We’ve had gorgeous weather in the UK, followed by a reality check over this weekend.

For me, I had a brilliant spring week at Jefferies: learnt loads, met fantastic people and got excited about equity research. Beyond that, it was a lot of travel (back to Birmingham for a single evening, my school awards night) and studying in between.

Highlight of the week: my Wednesday in Birmingham. I spent the day at the university’s library, with two Imperial friends, chatting and getting a decent amount of work done. The evening brought with it a brilliant concert, of pieces I’d never heard before. To believe we got that for £1 a pop with an offer was crazy, crazy delightful.

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Today’s topic of interest is anchoring, a behavioural economic concept (stay with me, it’s not boring (Alex 😁)) about how our judgements are influenced by the first ‘price’ you set.

The hours in equity research, the Jefferies division I was ‘spring week’-ing in, are long, as you’d expect at an investment bank - typically 6:30am/7am to 6pm.

You get in so early in order to be ready before the markets open. You can react to any overnight news, produce ‘sector notes’ for your clients before trading opens and can start the day with a clear, non-market-movement-cluttered mind.

Through the week, I found myself not really batting an eyelid at the hours…until I came home, shared this with Mum who said, “are you kidding? Those are long hours”.

Why is this? In retrospect, of course they are long hours - 60+ hours a week, notwithstanding travel, which is longer than the typical yardstick of a 9-to-5’s 40 hours.

The reason I didn’t think about it too much - the previous consideration of a job’s hours I’d had was with investment banking. Known for its notoriously long and late hours, typically stacking up 70 to 80-hour weeks (including weekends!), it had been one of my main hesitancies. Therefore, in comparison, equity research seemed better.

I noticed this inadvertent benchmark when I was reflecting on equity research, specifically answering a friend’s question of “what are the drawbacks of the role? Can you live with these?”. Whilst it was useful to contrast between the 2 areas of banking, the question needs a consideration of ER in relative isolation.

So, lesson #1 is to recognise when you’re under the influence of anchoring when evaluating something or someone. It can definitely help: imagine you’re expecting to get 70% on a test and you get 85% (a certain person is hoping for that in 3 weeks’ time 😉). However, with all expectations, it can be misleading.

You can also use anchoring to your advantage, particularly when it comes to negotiation. A key rule of effective negotiation is to make the opposing party feel like they’ve ‘won’ - have given up less ground than you have - but ultimately, you benefit. A scenario could be: I’m prepared to pay £400 for something, I start at £300 and agree £360 with the seller.

This is one of the supposed reasons behind Trump’s wacky and seemingly jumbled policies - that it is all part of his negotiating ploy in his transactional diplomacy. He starts with these excessive, disruptive tariffs to get world leaders to “kiss [his] ass” and offer him treats that work in his favour, ultimately ending up better off. It was the approach to Mexico, establishing tariffs before waiving some of them after an immigration deal.

Lesson #2 is to use anchoring to your advantage, to influence people’s thinking and to win negotiations.

Finally, an aside about anchoring relating to first impressions - I’ve written recently (see below!) about how add too much weight to the first impression we have (of people and things). Perhaps it is an anchoring effect there too - any actions they take after our initial meeting are now compared against how we initially understood them to be. There’s a cool quote about in our Quote of the Week - check it out below!

People aren't spices - you can't put them into boxes

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Podcast of the week🎙️

The Final Word Cricket Podcast: The Final Word with Mervyn King

A very unique intersection of my interests - cricket and economics. Listen to this brilliant interview with a former Bank of England governor and now MCC’s chairman. The first half is all cricket, the second half is his story.

What I’m grateful for this week 🙏

My HDMI cable and Mum’s extra monitor - it has made studying a lot easier than it could be, with a dual screen and, more importantly, a larger screen

Quote of the week 💬

It takes 20 years to build a reputation and 5 minutes to ruin it. Warren Buffett

I hope I’ve built a decent reputation, for however long you’ve known The Sun’s Out and me. Now to make sure it’s anchored down - see you next week!

Adi