Fat Friends and Lonely Investors
(MediaCorp 938LIVE’s Money Talks on Thursday, 2 August
2007, 7.45 am and 7.20 pm)
If your best friend sitting next to you is fat,
there’s a good chance that you are fat too. If you are not,
then you will be very soon.
This is according to a study published last week in
the New England Journal of Medicine. It shows that a person's
chance of becoming fat is 57 percent, if he or she has a fat
friend of the opposite sex. The chance of becoming fat shoots
up to 71 percent, if your fat friend is of the same
How can that be, you ask? Isn’t there a genetic component at
work? In fact, there is. According to studies on genes and
obesity, all of us have a genetically determined weight range
of about 13 kilograms.
So whether we are 13 kilograms above or below our
genetically determined weight, depends on the environment. The
question puzzling scientists has always been: why?
The study released last week shows that there is a
strong relationship between obesity and friendship. It suggests
that our social networks have a much greater impact on making
us fat than our genes.
The study may explain why our best efforts to slim
down are so often futile. If someone close to us eats like a
pig, we don't feel as bad about it when we ourselves eat like
This tendency to behave in a social network is also
carried over into the world of investments. In the past decade,
a new school of thought, called “behavioural finance”, has
evolved to try and understand investors’ behaviour.
One of the things discovered is that there is a strong
tendency for investors to sell winners too soon and hold on to
losers too long.
The possible explanation for this is that investors,
especially men, like to boast about their successes. So once a
little profit is registered, they will sell, giving them the
reason to boast.
On the other hand, when losses are registered,
investors would rather not sell and talk about their failures.
More often than not, the losses mount. Because of this peculiar
behavior, 9 out of 10 investors will eventually lose
Another thing which we have discovered is that
investors tend to be very sociable people. This is
understandable. There are some things in life, like books and
movies, whereby the quality of our experience depends on
whether others experience it as well.
When both of us have seen the same movie or read the
same book, we can delight in conversation about it. Economists
call such interactions ``network externalities''. We must not
underestimate its impact. It has played an important role in
the success of bestsellers like Harry Potter.
Let’s take a group of friends. After one friend starts
to boast about his profits in property investments, for
example, the tendency is that the whole group of friends will
end up dabbling in property investments too.
The danger of such social networks is that information
exchanged about the property market tends to verge on the
sensational. That is why, both the HDB and URA had to release
detailed property data last weekend, to address any wrong
Therefore, the weakness of any interaction between
investors is not very different from that between fat
So, if you want to be a successful investor, the solution is
to invest alone. In the absence of friends to boast to, you
will make better investment decisions. And if you want to be
slim, the solution is not to have best friends who are fat.