Markets: Condemned by What they Remember and Forget


I embraced English in college, not finance, or even probability.  I take pleasure in writing; I find it therapeutic to tell stories, set the scene of pending affliction, perhaps offering insight into what our market is currently grappling with.

I have no interest in claiming I know what direction our markets will take.  Simply for the reason that I don’t know.  It’s not faculty.  It’s not anything that I can work on or change.  It’s not something I choose to be particularly burdened with.

Decades ago, I came to learn that deep within the passageways of our financial markets lie endless heaping piles of complexity.  And that complexity crystalizes in the form of probabilities – the probability of gold rising by 10%, the probability of the Fed raising Fed Fund rates in October, and so on.  And, no matter who you are or which way you look at it, these probabilities are impossible to comprehend.

Despite all of this, there exists a legion of well-intentioned analysts and economists tasked with the targeting of our country’s GDP, inflation forecasts, or a company’s earnings as though such a thing was truly possible. They are evermore clever to invent the vitamins of what investors are clamoring for.  To help them once and forever accomplish that struggle of Sisyphus; to stop rolling the boulder uphill by  continually buying high and selling low.

Today’s financial culture have cast aside process in favor of immediate outcome – the by-product being an endless stream of bloggers, glossy newsletters, and all those buoyant faces on financial TV channels informing us that oil went up or down by a fraction of a percent because of one million factors.

A bushel of wheat or a stock certificate have largely lost their purpose being reduced to an agent of wanton speculation where human ingenuity and basic risk-management principles have been replaced with those who  misled into thinking that concepts including volatility and correlations can be well-defined and eloquently explained. A race to the bottom in an attempt to extract any possible information shred to beat the market just one more time.

The end result is this: Day in and day out, we scrutinize real and simple prices of stocks, bonds, commodities, and foreign exchange on our electronic gadgetry while the unmitigated process of buying and selling is done so effortlessly as if it were all very frivolous.  Yet, when you truly think on it, these prices are nothing but a naïve articulation of outcome hoped for, process neglected, and probability lost in translation.

The investor may be condemned as much by what he remembers as by what he forgets.