I agree only to a point. Sometimes the action in the market on a given day can be easily attributed to news of the day. That day in October 1997 when circuit breakers closed the US market early because of a large decline was clearly attributable to the Asian Contagion. Likewise in the first couple of days after September 11 when the market declined was pretty easy to understand. But not every day's trading can attributed to news.
Yesterday's step off was blamed on the Supreme Court ruling on Obamacare. Then the snapback was attributed to positive rumblings out of Europe. Whether that description is noise or a real explanation is up to each investor to decide for themselves.
This sort of dynamic where the fear of the thing being bigger than the actual thing is a behavior that repeats over an over in market history. That the court would make a ruling was widely known well in advance and usually widely known well in advance means a faster reaction and faster than normal return to the status quo versus something that very few people see coming.
While there is plenty of hindsight bias around the financial crisis many did not see it coming. Think about all the commentary and speeches from government officials and Wall Street talking heads; most people said there was no serious problem. Four or five years later (depending on how you count) and we still have big problems. Of course time may prove me wrong about the lasting impact of yesterday's ruling but that goes with the territory of actively managing a portfolio.
The picture is a coffee house in Auckland and completely unrelated to the post.
5 comments:
For this reader, on this subject, Taleb is 100% correct. IMHO,of course.
I know a number of large investors who watch no "news" whatsoever. That is the basis of my assessment.
Recently I have stayed out. One key indicator is giving me negative to come the charts were giving me a positive mkt action. in such enviroment I sold off the cop investment. Europe in a month may be where they started with no solution wich means neg mkt action.
Jeff from nyc
Guess I will agree with Bill Clinton that the era of big government is over; with the ruling on Obamacare, we are now in the era of total government dominance.
Just noise is right but volume and sector moves suggest a number of folks assumed SCOTUS affirmation of the ACA (to give it its proper name) was bad news and bet accordingly; needless to say they covered by end of day. What is it Ritholtz is fond of saying, investing based on your political beliefs is an excellent way to lose money?
OT: From my POV, the ACA aka "Obamneycare" is the biggest giveaway to insurance and medical corporations this side of Medicare Part D and I'm still holding on to the hope folks will eventually throw their hands up and go to a single payer system when they finally realize the profit motive and widely affordable health care don't mix; i.e., there is no such thing as a healthcare marketplace of, if there is, it fails on a regular and often catastrophic basis.
But more realistically ACA will be a work in progress I think: Banging out the rough spots (and lord knows there are a bunch of them) as we go because one thing is for certain, the old way of doing health business was collapsing and there is no returning to it.
NB: interesting to see the way the SCOTUS restricted the use of the Commerce Clause in the process of affirming the ACA, forcing the penalty for non-compliance to be constitutionally construed as a tax instead. A lot of folks were nervous at the application of Commerce to regulate an inactivity as this could imply its use to oblige just about any kind of behavior. Basically a "conservative" decision -- meaning restrained rather than right-wing -- was used to affirm a "liberal" law (as noted above it would have made me much happier if it had been a lot more liberal but compromise is the meat and potatoes of democracy so that's that).
Amen to single payer being the only affordable option.
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