The stock markets for the past 3 weeks has been just fascinating. And by fascinating, I mean quite crazy and on most days, quite painful.
I studied Finance at Rutgers, and we learned a lot about how “efficient” the markets were. How all available and whispered about information is efficiently synthesized by the vast army of buyers and sellers which leaves the price at the perfect spot balancing all available information.
I’ve always thought this theory was total crap. And now, with a few more years away from coursework, I definitely think this is all crap.
Based on my 10-year investment (read: stunningly successful at losing money) career, and on the past few weeks, I’ve concluded that the market tries to find equilibrium between two things:
1) Greed.
2) Fear.
That’s it. These wild fluctuations sealed the deal for me. Today, apparently, everyone is greedy.
4 Responses
Brian Siegel
August 20th, 2007 at 7:59 am
1i enjoyed your comments on the efficient market, and my thoughts synch with your “efficient market” cynicsm, especially after the recent turns, and my study of Finance through my MBA at XU plus personal ventures…eat your heart and assumptions out Eugene Fama and Markowitz, ha…like the inevitability of change, the only efficient thing is “inefficiency”. http://publish.uwo.ca/~jnuttall/EMHsum.pdf , http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2001.tb00013.x , http://info.worldbank.org/etools/docs/library/156527/africabondmarkets/pdf/endo_notes.doc (market, behavior, economics, finance articles…I am more into ideas, people, and marketing, but appreciate econ/acc/fin greatly…)
rock on! gotta get back to maximizing my semi strong utiliy and leveraging my priceless time on this planet! B
Douglas Brown
August 23rd, 2007 at 9:48 am
2I always got so confused by math, finance and accounting so I keep a simple approach to investing that so far has worked for me. It really does tend to confirm your comment about the market being driven mostly from fear and greed. I stick to buying into equities when the market takes a fairly large dive and I don’t usually sell equities at all.
It IS fear that makes people sell when the market dives. Why would you sell your house when the price drops? Wouldn’t you BUY when prices are low? I am no economist, but I can see how the market performs long term, and if you don’t let fear or greed take over, you can ride out an economic downturn without losing anything if you have not invested all your money in one or two stocks.
Dean Jones
September 12th, 2007 at 5:02 pm
3Great thoughts! … from life’s perspective to your “efficient markets” investment discourse.
i couldn’t agree with you more … Having said that, without overloading your blog with my thoughts and response, you can visit my blog on how i reacted and now how I pursue investing in the stock market.
Cheers!
http://dowjonestrader.blogspot.com
Doohee
October 14th, 2007 at 9:49 pm
4A little old, but an interesting subject.
An interesting thought. Fear these days, though some greed is up and coming, but fear the fear.
Efficient markets = no bonuses.
PS I work in subprime mortgage, not all the time but a lot. FEAR.
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Surya is...
an Internet entrepreneur turned Brand Manager. I've “returned” to my roots and today focus on emerging media strategy. And strange as it is, if I look familiar its because I was on the TV show The Apprentice. And, yes, I know it was terrible.
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