Hi there,
Quite the 2 weeks - in the world and in my world. Weâve seen the rollercoaster ride of Trumpâs tariffs, throwing the news cycle into disarray. Weâve 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 universityâs library, with two Imperial friends, chatting and getting a decent amount of work done. The evening brought with it a brilliant concert, of pieces Iâd never heard before. To believe we got that for ÂŁ1 a pop with an offer was crazy, crazy delightful.
Todayâs topic of interest is anchoring, a behavioural economic concept (stay with me, itâs not boring (Alex đ)) about how our judgements are influenced by the first âpriceâ you set.
The hours in equity research, the Jefferies division I was âspring weekâ-ing in, are long, as youâd 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 âsector notesâ 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 hoursâŚuntil I came home, shared this with Mum who said, âare you kidding? Those are long hoursâ.
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-5âs 40 hours.
The reason I didnât think about it too much - the previous consideration of a jobâs hours Iâd 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 friendâs question of âwhat are the drawbacks of the role? Can you live with these?â. 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 youâre under the influence of anchoring when evaluating something or someone. It can definitely help: imagine youâre expecting to get 70% on a test and you get 85% (a certain person is hoping for that in 3 weeksâ time đ). 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 theyâve âwonâ - have given up less ground than you have - but ultimately, you benefit. A scenario could be: Iâm prepared to pay ÂŁ400 for something, I start at ÂŁ300 and agree ÂŁ360 with the seller.
This is one of the supposed reasons behind Trumpâs 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 âkiss [his] assâ 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 peopleâs thinking and to win negotiations.
Finally, an aside about anchoring relating to first impressions - Iâve 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. Thereâs a cool quote about in our Quote of the Week - check it out below!
Podcast of the weekđď¸
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 MCCâs chairman. The first half is all cricket, the second half is his story.
What Iâm grateful for this week đ
My HDMI cable and Mumâs 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 đŹ
It takes 20 years to build a reputation and 5 minutes to ruin it. Warren Buffett
I hope Iâve built a decent reputation, for however long youâve known The Sunâs Out and me. Now to make sure itâs anchored down - see you next week!
Adi