Science unveils hidden drivers of stock bubbles and crashes - Yahoo!7 News
I'm just reading Forecasting Financial Markets where the main theme of the book is group behavior and how people as members of groups behave
differently to people as individuals. There are reinforcement cycles
and other elements that have nothing to do with the underlying idea,
once a group spins off. Applied to the market this means that booms and
busts don't have much to do with the underlying value of stocks.
Don't
know if that is comforting but will definitively be more investigated
into after this current crash. Now even the healthy institutions are at
risk of falling down because of business depending on ratings depending
on the stock price depending on emotions of stockholders.
Nonetheless,
yesterday was a good time to buy when the S&P 200 in Australia hit
4500. Macquarie was down but quite healthy. That is visible as the
orders came in today and the price is back up 55%.
I'm just reading Forecasting Financial Markets where the main theme of the book is group behavior and how people as members of groups behave
differently to people as individuals. There are reinforcement cycles
and other elements that have nothing to do with the underlying idea,
once a group spins off. Applied to the market this means that booms and
busts don't have much to do with the underlying value of stocks.
Don't
know if that is comforting but will definitively be more investigated
into after this current crash. Now even the healthy institutions are at
risk of falling down because of business depending on ratings depending
on the stock price depending on emotions of stockholders.
Nonetheless,
yesterday was a good time to buy when the S&P 200 in Australia hit
4500. Macquarie was down but quite healthy. That is visible as the
orders came in today and the price is back up 55%.
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2 comments:
That article is nonsense. Long-term success as an investor requires continually making correct choices as to which companies have the potential to create value and which ones do not. Nine out of ten investors may lose money by investing emotionally, but all the wealth created by markets is possible only to the extent that entrepreneurs are able to correctly anticipate consumer demand and product viability.
The sole cause of business cycles is government interventionism, which erodes the ability of markets to signal which investments are most profitable. For example, the manipulation of interest rates destroys the ability of investors to know how much real savings is available to pay for growth. Government bailouts like we are seeing now destroy the ability of markets to redirect wealth from wealth-destroying enterprises into wealth-creating ones. Thus, the ultimate driver of markets is not anyone's expectations and wishes, but the creation of real material wealth.
"Thus, the ultimate driver of markets is not anyone's expectations and wishes, but the creation of real material wealth."
I agree with the above. It is the *ultimate* driver. The issue at hand, though, is not the driver of markets but the driver of market prices. These are based on expectations, not real material wealth. As the expectations change, so does the price.
The issue of the "real" price is also questionable. What real value has changed causing the same amount of oil to cost $90 instead of $120 a month ago, or the exchange rate of AU$ to amount to only EUR 0.45 instead of 0.61? The same values are still there but the expectations of the demand->price->profit are different.
If "driving" is a bit hard, I'd say that emotions quite enhance the normal market movements. Normal market movements being what you state - the underlying real value.
Also, important question at current bailouts is what happens with the economy if left to itself. The intervention goes against free market but it also keeps the undesirable social movements to a minimum. Noone wants more unemployed and homeless people, just to defend the ideal of a free market, I guess.
Thanks for the comments!
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