🎙️ Neuroforecasting

The holiday weekend is here, but we can’t stop thinking about Nvidia’s latest incredible earnings report, which pushed the Nasdaq to another record high Friday.

🤯 The only U.S. companies to earn more money than Nvidia are Apple, Microsoft, and Alphabet. That’s it, that’s the list.

You could sccop up Nvidia shares for ~$120 less than two years ago. Today, they’re ~$1,064 apiece. Rarely in history has any company managed to boost its profits so rapidly at such an extraordinary level.

The big question: Can the chipmaker maintain its pace?

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• What our brains know about stocks

• The NCAA’s $2.8 billion settlement

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

🧠 What Our Brains Know About Stocks — But Won’t Tell Us

Investing can be a funny game. It’s endlessly fascinating, stimulating, and (potentially) lucrative: Many bright minds enter the field to test themselves and try to make a fortune. 

But it’s also one of the only activities where a novice can outperform the professionals. Investing also involves challenges and mysteries, such as overconfidence, complex human emotions, and the power of the subconscious. 

Inversely emotional: All great investors are rational, involving thorough and deliberate research rather than relying on emotions.

• Warren Buffett's approach is described as "inversely emotional," where he capitalizes on market sentiment by being fearful when others are greedy and greedy when others are fearful.
  

• The method contrasts with the unemotional, logical approach of Spock from "Star Trek." 

As The Wall Street Journal’s Jason Zweig writes, “Many factors can influence investing decisions, including our experience, our current mood, and how much risk we want or need to take.”

Stay engaged: Studies have shown that brain regions involved in processing emotions, such as the amygdala and anterior insula, play key roles in decision-making. Those who can better sense their bodily states, like pulse rate, tend to make more profitable trades by attuning to their gut feelings.

Others don’t rely on gut feelings; they need to see a business so undervalued that buying it makes them “want to throw up.”

Why it matters:

Forgo thought? Recent research in "neuroforecasting" indicates that brain activity can predict outcomes better than conscious thought. 

• Experiments have shown that while people's conscious predictions about stocks and other investments are no better than chance, subconscious activation in the nucleus accumbens—a brain area associated with reward anticipation—can accurately predict successful outcomes.
  

• A study with Dutch professional investors demonstrated that their brain activity could forecast stock performance better than their conscious guesses.
  

• For example, feelings of fear might suggest a buying opportunity, while feelings of greed might signal a time to sell. This simple yet counterintuitive approach has proven successful for many investors, including Charlie Munger and Buffett, who have thrived by taking positions others shunned. Of course, it’s much easier said than done when stocks are falling rapidly, and there’s “blood on the streets.”

Bottom line: Understanding our emotions and all their quirks — rather than suppressing them — generally leads to more rational and successful investing strategies over the long haul. 

Read more

More Headlines

📈 Nvidia CEO’s net worth rises from $3 billion to $90 billion in 5 years

🛁 How some housekeepers are making $150,000 a year

💰 The number of 401(k) millionaires has hit a record, Fidelity says

💸 U.S. economic output hits 2-year high while stock market soars

🥕 Why groceries are still so expensive despite cooling inflation

🏀 NCAA to Share Revenue With Athletes

More big bucks are headed into the pockets of elite college athletes. 

The NCAA and the five most prominent athletic conferences agreed this week to a landmark $2.77 billion settlement of a class-action lawsuit, marking a big shift in college sports policy: The settlement allows schools to pay athletes directly, breaking a century-old stance that college athletes should not share in the revenues they generate.

Key details include:

• Settlement amount: $2.77 billion over 10 years.
  

• Annual athlete payment: Division I schools will be able to distribute roughly $20 million a year to their athletes.
  

• Funding mechanisms: $1.2 billion will come from new revenue sources and savings, while the remaining $160 million yearly will come from reduced NCAA member disbursements.
  

• Athlete compensation: Schools will pay athletes 22% of the average annual athletic department revenue among schools in the top conferences.

Zoom out: The lawsuit, initiated in 2020 by former Arizona State University swimmer Grant House and others, challenged NCAA restrictions on player compensation from endorsements and a share of television revenues. The settlement aims to resolve this and two other antitrust lawsuits, one related to education-related benefits and another on compensation restrictions.

Why it matters:

For the last couple of years, star athletes have been earning well into the six figures—some in the millions—for commercials, autograph sessions/events, and other means, including sponsored posts to their (often) millions of social media followers.

This settlement functions as another income stream for athletes and will take effect in the 2025-26 academic year. (Note: This does not resolve all the NCAA's legal challenges, including ongoing antitrust cases and questions about classifying athletes as employees.)

Wealth gap? Some university leaders, like Notre Dame's president John Jenkins, expressed concerns about the financial impact, particularly on smaller conferences that rely heavily on NCAA distributions. 

• The settlement's financial implications could exacerbate the existing revenue discrepancies among schools in different conferences. The big, wealthy schools could remain that way, while smaller schools’ struggles could be exacerbated. 

Also of note: The proposed revenue-sharing model differs from professional sports leagues in that it is unilateral, lacking a players’ association to bargain with the NCAA collectively.

Bottom line: Most people inside college sports view the settlement as a win. They say the sport is moving toward a system where athletes are compensated more fairly for their contributions.

Read more

Quick Poll

On Wednesday, we asked: Do you own shares in Nvidia? Why or why not?

— Readers are split on whether they own shares (directly) in Nvidia. “My financial management company selected it,” one respondent said. “Can't go wrong when they're a market leader plus extraordinary earnings reports quarter after quarter.” And: “Business keeps growing due to unsatisfied demand.”

— As for no? “It’s too expensive now,” one said. “I don’t own individual stocks,” said another. Others are worried about the hype and valuation. “I am a little scared now that they are overvalued,” one said. “Trying to avoid overweighting in AI. I own Microsoft and BRK (Apple by default). Also missed the run-up, so I fear a pull back.”

See you next time!

That's it for today on We Study Markets!

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