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Being in the Market!

Discussion in 'Shares' started by Tropo, 23rd Jun, 2009.

  1. Tropo

    Tropo Well-Known Member

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    Being in the Market!

    Some days I struggle for things to rave or rant about in this morning missive. Often, after bleeding at the keyboard for an hour or two, something seemingly worth saying pours on to the screen; but there are those days when only the keyboard is stained. Today is one of those days.
    So, my guest columnist, if you will, is F.J. Chu.
    Mr. Chu wrote a wonderful little book titled “Paradigm Lost.” It’s a real gem of a book that I often return to, and consistently find increasing amounts of wisdom each visit. I was re-reading his section on “Being In the Market,” and thought you might enjoy it, especially as we start our week in the market.
    Here is an excerpt:
    “We find it upsetting that the market, or at least the rational and quantitative aspects of it that are explained to us by the experts, only describe the surface of our investment world. But the truth is that market prices are determined by a set of complex variables that resist precise quantification.
    Beneath that appearance exists another world that is disclosed to us by volatile stock price movements and by direct experience. Unlike the familiar language of precise financial data, dry economic analysis, and quantitative rankings, this other world is increasingly throbbing and moving, driven by the basest emotions, and fed by rumor, misinformation, and fantasy.
    The investor is told that the first world is ‘objective,’ rational and real; while the second world is ‘subjective,’ irrational, and alien. For comic relief, a sage once suggested that someone who is skeptical of the reliability of his physical senses should by whipped until he is convinced of its certainty.

    “Since we have already split market reality in two, which one is the one that predominates? That answer is that they both do, although the timing and the degree to which they determine actual market prices is refractory to investors’ power of anticipation.
    As a consequence, the investor is shunted between these two worlds, feeling like an anonymous and unwitting cog in the great game of the markets. Is there a way out? Now if this were merely an academic argument between university professors, we could dismiss it as the cogitation of overly refined intellects. But this duality infects the whole of our investment world and reaches deep into our portfolios.

    “The unique and fascinating nature of the markets is due to the centrality of Being—the mind of the investor, many investors, and in its totality the mind of the market. Its uniqueness has to do with the way the investor stands out within time and in relation to time. In every trade (or every click of the mouse) the past, present, and future all converge in on instant in one physical space. The unique character of each investor’s mind—in infinite variations of reason and emotion, fear and greed—finds its expression in the cascade of market prices.
    What is suggested is no less than the Socratic ideal of an individual, intelligent, and informed investor who thinks for himself, uses independent judgment, and acts with deliberate choice. It is the real of—Being-in-the-Market—where extraordinary power of ideas takes shape.

    “The fundamentals of our financial markets have been well explored by others, to the full accompaniment of graphs, charts, and statistical minutiae. But all the quantitative attempts by the technician are merely seeking to describe an emotional state of the market. The stock market is really too multifaceted and complex to be sufficiently captured by any single methodology or ideology.
    But all this discussion will probably have little ‘cash value’ for the economists and market technicians. They will continue to look through Being—Being-in-the-Market—because it is so transparent that they cannot see it. In the end, however, Being is what the market technician cannot account for.
    “And Being is what points the way toward a real comprehension of the markets as a whole.”
    Jack Crooks LLC
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hence why Long Term Capital Management hit the wall in a spectacular way...
    According to Niall Ferguson these Quantitative geniuses only backdated 5 years worth of data. Great for the up cycle, not so good for the down cycle...

    Cheers,

    Dan
     
  3. try anything once

    try anything once Well-Known Member

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    I don't think the duality is that difficult to fathom - the short to medium term market behaviour is all about psychology, the long term is all about fundamentals.

    There is no way that fundamentals can account for the typical price swings which occur in a volatile market.

    JLikewise investor psychology cannot account for the the demise of car maker market caps over the past 30 years - its about fundamentals.
     
  4. Tropo

    Tropo Well-Known Member

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    “......the long term is all about fundamentals.”

    Market is driven by emotion (mood) of all players NOT by fundamentals no matter how long or short term is.
     
  5. try anything once

    try anything once Well-Known Member

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    Market is driven by emotion (mood) of all players NOT by fundamentals no matter how long or short term is.[/QUOTE]


    Are you really suggesting there is zero correlation between a companies share price and its earnings per share or NTA/share?

    I would agree that these are not good predictors of future performance, but to suggest that the earnings of a company has no correlation to its current share price is just silly.

    So in the long term if a company manages to triple its earnings, its shares will likely be worth 3 times as much, nothwithstanding +/- 20% due to the market mood/emotion of the time.
     
  6. Tropo

    Tropo Well-Known Member

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    Silly...is to think, that there is a correlation between share price and company earnings.
    The price of stock has very little to do with a company it represents. Share price represents a relationship between supply and demand.
    If fundamental analysis were correct, every information would move a market in the certain direction (how many times market moves down on good news and vice versa?).
    Also, fundamentals do not take into account the key driver such as psychology of the market (or should I say a psychology of all players!).
    Market participants move the market not balance sheets. The last few months proved again how good and reliable fundamentals are.
    Oh yes...during a strong bull run even so called fundamentals work. :eek: