Let's say that 100 bottles of beer on the wall typically cost $100. Which would you rather have—150 bottles for the same $100 or 100 bottles at a 33% discount? A recent study indicates that most people would choose the 50% increase in quantity over the 33% discount. In actuality, you get the same result in either case—one bottle of beer would sell for $0.67 instead of the regular price of $1.00.
In describing the study, The Economist states that shoppers "prefer something extra for free to getting something cheaper. The main reason is that most people are useless at fractions." Ouch!
Of all the problems that can arise from having two spouses, you probably would not put inheriting pension plan benefits as one of them. Despite the odd circumstances, listen to why this is an important cautionary tale.
The recently departed gambling legend Amarillo Slim famously said about playing poker: "Look around the table. If you don't see a sucker, get up, because you're the sucker." The jury is still out as to whether the same sentiment applies to individual investors in Facebook's initial public offering, fondly referred to by some on Wall Street as "dumb money."
Before we get to the question of whether Facebook was a good buy—that is, whether the price per share represented a reasonable bargain—we first have to consider whether we had sufficient information to make a reasoned decision. Unfortunately, there is not a perfectly level playing field when it comes to initial public offerings (IPOs).
An accountant recently told me that a number of her clients remained nervous about the stock market. Apparently the residual fear from the great upheaval of 2008-2009 and the uncertain state of the world economy is making them extremely cautious. I am sure that for many of these people the stock market appears to be a casino—a game of chance with no apparent explanation for its movements.
This perspective may be impacted, to some extent, by the growing popularity of index funds. An article in Morningstar Advisor argues that the proliferation of index funds corresponds to "increased trading commonality among index constituents through the interactions of market participants." Huh?
