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Charles White-Thomson, Saxo Markets

 The perks for investors behind being one of Pavlov’s dogs


Charles White-Thomson, CEO at Saxo Markets reflects on his thinking a year ago.

In July 2021, almost exactly a year ago, I wrote an op-ed titled – ‘Step aside Ivan, it is Kim time?’ My note reviewed classical conditioning within the financial markets and whether Pavlov’s dog theory is at work amongst investors? This coincided with an article by Charles Randell, the FCA chair, who called for greater powers against risky crypto ventures and the role of influencers including Kim Kardashian.  Mr Randell subsequently went on to say: “Ms Kardashian had asked her 250 million followers to speculate on crypto tokens”. Interestingly, a class action law suit was subsequently filed against Kim Kardashian and other celebrities in what was allegedly a ‘pump and dump case’ in EthereumMax crypto-currency (BBC).


Ivan Pavlov (1849-1936) was a Russian physiologist and is famous for his work into classical conditioning, including conditioned and unconditioned stimulus. This can be seen clearly with his work with dogs and their approach to food and feeding time – better known as Pavlov’s Dog Theory. Pavlov discovered that by consistently ringing a bell ahead of feeding his dogs, he conditioned them to associate food time and eating with the bell, as opposed to seeing or smelling the food. In this case, the bell, the conditional stimulus, brought on increased salivation in preparation to eat. The dogs were conditioned and prepared to eat ahead of the food or the unconditioned stimulus.


I concluded that we in the financial markets, and probably more broadly, are being classically conditioned a bit like Pavlov’s dogs. This is usually associated with influential people or organisations and with a particular subject or theme.  Mr Randell highlighted Ms Kardashian and crypto, arguably to this we could add Elon Musk, Matt Damon and many more.  They are hugely influential, whose tweets or comments in many cases triggered positive thoughts about cryptocurrencies, including the aptly named Dogecoin.  In these cases, tweets are the conditional stimulus, in that they encourage the readers to think positively, and in some cases negatively, about crypto with the unconditioned stimulus any subsequent buying or selling of crypto assets.


Classical conditioning is not always associated with people, in some cases it can be in the form of a scent or smell, as experienced with the appropriately named “Fierce” scent or aroma retail clients were met with when visiting an Abercrombie and Fitch store. This scent helped to supercharge clients for the retail experience and subsequent purchases or the unconditional stimulus.


Successful investing is not just about managing your actual capital or money, you also need to protect and cherish your mental capital or emotions. In my experience both are equally important to a successful outcome or put another way – low confidence makes investing much more difficult.  It is not necessarily a bad thing to be one of Pavlov’s dogs, the key is to recognise it within yourself, and by doing this you can compensate and offset. Challenge and balance are the key.  The message is not to be always wary of the bellringers, as in many cases they offer sound advice, it is more to know which bell ringer influences you. This takes some careful thought.


This year has been very challenging for financial markets with a collapse in different financial instruments including many technology names and cryptocurrencies. We are therefor at the ‘careful thought’ phase, and I would encourage investors to review those ‘bellringers’ who have influenced them. This is not just about crypto, this should be a broad review, including – inflation and the transitory debate, always buy the dip advice, classic 60 / 40 portfolio construction and so on.   Such reviews are necessary, especially when we note the significant losses experienced to those portfolios which lacked diversification and basic risk management. Promote those who have served you well and demote or remove those who have not.  It is also worth remembering that bellringers are not just individuals, they also include institutions and revered ones at that.



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