Gustavo Ballvé on November 16th, 2009
Food for thought, Mental models

In this April 2002 classic, the investor education site Motley Fool pokes fun at the daily ramblings about why the market has behaved the way it has. In fact, we used to get twice-a-day “updates” by a venerable U.S. financial newspaper “explaining away” intra-day movements. Needless to say, when the market reversed course from the morning to the afternoon sessions, the same “experts” who explained the morning trend now had a “make-sense” reason for why the market was doing the exact opposite… People need to make sense of market activity and embrace the nuttiest explanations, so the Motley Fool’s joke almost rings true.

The Market Tells Us The Market’s Down

Motley Fool, April 29th, 2002
Looking at recent market action, we saw some pretty violent drops and rises. Investors started the morning buying Nasdaq companies, due in no small part to the buying that was going on in Europe. Then the buying stopped in Europe and the Nasdaq began to drop. It took some time for market participants to figure out that the reason buying stopped in Europe could be blamed on the fact that the European markets had closed for the day. Panic-selling ensued, as people became uneasy about the fact that everyone else in the market appeared to have no common sense whatsoever.

At the open the Dow Jones Industrial Average rose rapidly on the news that the S&P 500 was rising rapidly. Then investors simultaneously began to doubt that the economic recovery that has been happening was apparently not really happening. Many market commentators expressed bewilderment that something like economic prospects would have anything to do with the market action. “People are selling just to sell,” said Moe Aggressive, market analyst for Gruntal and Disgruntal, “It’s like everyone got worried about earnings at the same time. Heck, we’ve known that the economy was in the tank since 1999!” He then quickly corrected himself by saying, “I mean, since 2001.”

Market analyst polls suggest that we should expect the unexpected through the remainder of the trading day. “Our expectation for upside surprise is limited. But we do expect that expectations will improve once the expected jobs data comes out, expected to be higher than expected”, said one analyst.”

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