Anurag Sharma continued to make his case that emotions have a significant role in investing decisions in the third chapter of his 2016 book, “Book of Value: The Fine Art of Investing Wisely.”
Sharma began the chapter, entitled “The Dark Arts," by noting that it’s unfortunate we make mistakes because of inaccurate opinions and beliefs. What’s even worse, though, is that those mistaken opinions and beliefs also make us vulnerable to manipulation by others.
As Sharma built his case, I was reminded of the long-running battle over the morality of advertising and marketing. The debate was particularly loud during the 1950s as television and the advertising industry became part of the mainstream culture, but has continued since then in various forms.
Since I used to work in radio, I particularly recall the debates over allegedly hidden messages in the lyrics of rock music. Even more questionable were the claims that if you played some vinyl records backward you would hear Satanic messages (not that I ever noticed an epidemic of people playing their vinyl albums backward).
Still, Sharma made a good point, and he went on to review the history of mass persuasion. In ancient Greece, the sophists became the lobbyists of their time by using rhetorical devices and tricks to convince their audiences. For these specialized teachers, the facts were irrelevant - it was all about winning over public opinion for those who paid them.
We know of this example now because it was part of Plato’s “Dialogues,” which appeared in the fifth century B.C. Plato sought to expose their deceptions through a dialogue that pitted Socrates against a sophist named Gorgias.
Also in response to the sophists, Plato’s student Aristotle studied the art of persuasion. In his book, “Rhetoric," he divided persuasion into three elements: (1) Ethos, referring to the credibility of the source, (2) Pathos, which refers to the emotions of the audience and (3) Logos, which references logic and reasoning.
The Romans also studied persuasion, but then the academic subject went cold for about a thousand years. It was revived in the sixteenth century by the Dutch priest and philosopher Erasmus. Sharma wrote that the art of rhetoric and mass persuasion found a new role in the eighteenth and nineteenth centuries as democratic institutions became prevalent.
Thanks to elections, advertising and other venues, mass persuasion has itself become an institution in modern society. As Sharma noted, it has become ubiquitous in lobbying firms, law practices, public relations purveyors and in all media, including social media.
According to the author, “the vulnerable investor” has also been pulled into this milieu ever since Madison Avenue (the world of advertising) found a place on Wall Street. As the financial news media exploded in popularity, so too did the amount of news, opinions and information.
In concluding chapter three, Sharma wrote, “useful information comes embedded in noise and with hidden messages that make investors even more vulnerable to suasion or manipulation on a large scale - inducing them to make choices that are products of questionable influences rather than careful analysis.”
Conclusion
Emotions can keep us from making good investing decisions. As Sharma warned us in chapter three of “Book of Value: The Fine Art of Investing Wisely,” emotions also make us vulnerable to being manipulated into working against our own interests.
He illustrated his point by providing a history of the art of persuasion, an art that can be either light or dark, which is where the chapter title "The Dark Arts" comes from. Throughout recorded history, we have seen language, logic and emotion being twisted for the wrong reasons.
While generally agreeing with Sharma, I find myself a bit more skeptical about the power of the dark persuasive arts. I think we do have some power to withstand the assaults of mass persuasion, if we remain aware of its dangers.
Disclaimer: This review is based on the book, “Book of Value: The Fine Art of Investing Wisely”, by Anurag Sharma, and published in 2016 by Columbia Business School Publishing. Unless otherwise noted, all ideas and opinions in this review are those of the author.
Read more here:
- Book of Value: The Visceral Market Hypothesis
- Book of Value: Mental Gymnastics
- Book of Value: Noise, Luck and Choice
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