An Enigma Wrapped in a Riddle…(wrapped in bacon)

Share This

“It’s a fu^@ing game with rules that change every week, and anyone that claims to have it figured out is lying.” – the skeptical investor.

does a fantastic job dissecting the overall sentiment that most people have when it comes to the market. When it’s time to fish or cut bait, no one truly knows what’s going on in the stock market on a daily basis. Burton Malkiel said in his book back in the 70s that most people have about as good of a chance hitting some bulls eye’s on a dart board while blind folded as they do picking stocks that will return “above average” results. Josh makes some similar points:

How can a thing be both good and bad for stocks simultaneously?

Because it’s neither, in real life. It’s whatever you want it to be. Every day the correlations between thing 1 and thing 2 shift and change character. Sometimes oil being down is good for stocks and sometimes it isn’t. Sometimes rates rising is positive and sometimes it’s negative. The people who are most adept at concocting an explanation for everything are the people everyone else looks to for answers. But there is no truth that can be confirmed in real-time, only after the fact can an explanation be said to be the correct one. And while we await the results, there is only randomness.

Hell yes there is randomness! Market performance has become an enigma wrapped in a riddle with every market strategist acting as a sphinx. Anyone remember the Flash Crash of 2010??? The only thing that moved the market so precipitously were the preprogrammed algorithms that began tripping over themselves as millions of automated sell orders fought each other to be executed. What did that have to do with the news or oil prices or interest rates or anything else that people arbitrarily attempt to use on a daily basis to predict the ups and downs of the market?? Josh goes on:

Can anyone guess right most of the time?

There are like five people who can do this consistently, but they live in Switzerland or out in the woods of Eastern Long Island and they don’t talk to the press or manage money for anyone other than themselves. They’re billionaires and do not take part in the guessing games publicly.

To further drive home the point, those five people are probably Rothschilds and they planned for the event to happen anyway. Just kidding. Joking aside, short term plans really have no bearing in the aggregate performance of the stock market particularly because the market is so susceptible to the irrational exuberance of its own participants. Josh sums things up for us:

Oh. Okay. I think I get it…So how does one win?

By not playing. Or by minimizing the chance for substantial pain if one’s predictions about the behavior of others do not pan out. It’s okay to have a view or an opinion. But it’s probably not a great idea to plant a flag in the ground and deny the possibility that other stuff will happen that cannot be foreseen.

Personally, I’m a huge fan of Benjamin Graham and the idea of value investing over a long drawn out time frame. He and Warren Buffet spoke very acutely when they said that “In the short term the market is a popularity contest; in the long term it is a weighing machine.” Under these guidelines, one can assume a good return on investments provided they buy “modestly priced” securities and wait long enough to separate the wheat (good companies) from the chaff (bad companies). Admittedly though, who really wants to wait that long?

Link original Josh Brown article here:

Share This
No Comments

Leave a Reply