We are proud to announce that Dr. Burnham will speak at this year's Socionomics Summit on April 14 in Atlanta -- an event that will feature exciting new initiatives in research and application from the field's most prominent scholars and researchers.
Dr. Burnham shared some highlights from his impressive 30-year career in this candid interview:
Let's start from the beginning: When did you become interested in the link between biology and investing, and why?
I began trading and investing in 1981. I was a "Stocks for the Long Run" guy over a decade before that book was published. My first experiences were buying stocks at single digit P/E's -- and being puzzled by why they were so cheap.
As a first year PhD student at Harvard in 1993, I had a Marxist professor who made some silly connections between natural selection and economics. Even though his ideas were wrong, it set a spark in me. I made my way to E.O. Wilson's office in the Harvard biology department, and spent most of the rest of my PhD studies in the natural sciences areas studying evolutionary theory, hormones, and primatology.
Please tell us about your book, Mean Markets and Lizard Brains.
I use the phrase lizard brain to describe the parts of the human brain outside of the pre-frontal cortex. Some of these parts actually are similar to parts of the brains of lizards, but the phrase is meant to capture emotional and instinctual parts of human nature.
Although the lizard brain is the source of our investing and trading losses, it arose to help our ancestors. Humans are amazingly good at sensing patterns. Outside of financial markets this can help us intuitively know who to trust, who to hire, and how to win at poker.
Inside of financial markets, however, our lizard brains cause us to buy at tops, and sell at bottoms. We over-extrapolate trends, and systematically lose money.
Markets are places to lose money for most people. I used the phrase "mean markets" in 2005 because I thought our "money losing instincts" were about to cost most people even more money than usual.
People usually mistime markets; a tendency that is particularly destructive at inflection points when long-run trends turn. In 2005, I predicted the end of abnormally high returns to risk. After twenty years of easy money, I thought the world was about to change and punish investors.
Who do you admire in your field, and who influences your views?
I have had two educations in finance. The first was complete orthodoxy as taught at MIT. Markets are rational; prices discount the future, etc. The second has come from financial markets and from Bob Prechter. In a sense, I feel as though Bob has de-programmed me from a cult. The MIT world view of finance has nothing to do with asset markets.
In the last several decades I have moved all the way to thinking social mood is the causal force. We tell fundamental stories to ourselves to make sense of events that were caused by social mood.
Please share your thoughts about socionomic theory.
I believe socionomic theory is the best predictor of financial markets and the world more generally.
How are your classes going at Chapman University? What kinds of courses are you teaching, what do you find your students particularly interested in, and so on?
I love being a professor again. I spent almost six years in the asset management business. Those six years were great in many ways, but I want to be a professor.
I am teaching a variety of finance classes. I am continuing to refine the classes and am planning on increasing the socionomic portion of the material over time.
There is a bit of a tension in needing to teach students conventional tools even when those tools are not useful. Teaching my students the truth does not serve them well if they are so far ahead of the world that they cannot get jobs.
Are you working on anything outside the classroom that is related to social mood and the markets?
I have one current project that relates to social mood and markets. I am working with Sandy Green, a professor at USC, on the interaction between language and markets. Specifically," Why are some arguments accepted at certain points in market cycles and not at others?"
We are interested in ideas that are demonstrably false, but that become conventional wisdom at market extremes.
What are you looking forward to about the upcoming Socionomics Summit?
I am interested in socionomic applications outside of financial markets, and in meeting other people who are excited about the field.