Market Myths

Fairy Tales Mislead Investors of All Types

The world of investment is a hothouse of myths that belie the reality of the financial markets as well as the real economy. The billow of fairy tales pervades the entire domain, ranging from stocks and futures to commodities and currencies. The bluster of fiction serves to fuddle and stymie investors of all stripes. The players in a bind include newcomers dabbling in the market in their spare time as well as veterans bent on trading the whole day long. The worst of the folklore can be traced to a pile of voodoo spawned by the high priests of financial economics. The tall tales spun by the hoary clergy run the gamut from the mystique of random walks to the impossibility of superior returns.

Not surprisingly, the heap of bunk confuses rather than enlightens the luckless investors. In fact, a host of shibboleths don't just distort the reality but contradict the facts entirely. The hail of obfuscation feeds a quagmire that’s in many ways more slippery and treacherous than most people suspect. On the upside, though, the financial forum is not as fickle or mysterious as it seems to lots of folks, be they wild-eyed tyros or jaded pros. To approach the field in a cogent way, the earnest player can take concrete steps to sort out the wheat from the chaff, the signal from the noise. In thrashing out a sound trail through the thicket of hokum, the first task of the investor is to thresh out the solid facts from the mushy yarns piled high and wide throughout the landscape.

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The vale of investment is a hotbed of myths, much of which has little or no bearing on the reality of the market. All too often, the fairy tales gloss over the data or even turn the facts upside down.

The muss of fiction leads astray investors of all types, be they newbies or oldsters grappling with the market on a full-time or part-time basis. Even the practitioners steeped in the trenches of finance have a habit of spinning woolly theories that belie the hard facts. The story is similar, but worse, for the academics perched atop their ivory towers far from the hurly-burly of the bazaar.

According to the traditional dogma of financial economics, no one can ferret out any kind of pattern that could be used to squeeze out a plump profit in excess of the market averages. In truth, though, the market displays a raft of motifs that can be exploited by a deft player to a greater or lesser degree. A luscious streak of this kind may take the form of a repetitive structure or a one-off event.

Culling Facts from Myths

The importance of the financial arena in the modern economy has prompted a slew of attempts to plumb the system in a coherent way. Even so, the market has defied the bulk of efforts by researchers and practitioners alike to pin it down.

The elusive nature of the beast is especially striking in view of the flood of statistics pouring out of the bazaar day after day. Moreover, the gush of data grows ever larger with each passing year.

In its own way, the glut of information acts as a hindrance rather than an aid to comprehension. The market is so complex and raucous that the deluge of facts ends up obscuring the whole shebang rather than exposing the crucial features.

To compound the problem, the land of investment is a murky place chockfull of quirks that set it apart from all other fields. In fact, a host of features defy the trove of common sense that everyone comes to amass through many years of experience in diverse spheres of everyday life.

A telling example lies in the potential for a rank amateur to trump a seasoned pro in the financial ring. Better yet, the remarkable feat can be achieved – without any effort to speak of – by a rookie with just a bit of wit or a stroke of luck.

In order to tackle the market in an orderly way, the first task of the adroit investor is to fathom the nature of the beast. As a starting point, the seeker has to look beyond the mantle of mythos that hides the essence of the market.

Flights of Fancy

By contrast to the canons of classical finance, the market is neither rational nor efficient. If we take a step back from the bazaar and look around at the world at large, we can see that the situation could hardly be otherwise.

As it happens, we humans are not the cardboard figures that populate the flat models of financial economics. For starters, we are neither creatures of pure logic nor boundless wisdom.

The story is similar at the opposite end on the scale of rationality. We Earthlings are far from being beings of sheer impulse or utter whimsy.

Instead, the reality is a lot more intricate and interesting. Fact is, we mortals inhabit a middle state between the extremes of reason and fancy. What drives us is a rich cocktail of instinct and caprice mixed up with forethought and prudence.

In this way, the decisions we make and the actions we take stem from a lush mash of ingredients. The hash of whim and sense shows up most clearly when we act on the run in the midst of a roily environment.

A showcase is found in the financial ring, where competition runs riot and cooperation is anathema. In a harsh tract where self-interest is the name of the game, the niceties of humanity that pervade the rest of the society are nowhere to be seen.

From the standpoint of a gamer in the arena, an act of charity yields no payoff worth a dime. As an example, an altruistic soul could sell off a batch of stocks to other players at a bargain price solely out of the goodness of their heart. Sadly, though, there would be no recognition of the kindly act by anyone else.

As a nameless member of the crowd, a recipient of the largesse will neither know nor care who was responsible for the selfless deed. Moreover, the beneficiary could not even ascertain whether the gift happened to be a willful act of generosity or a wanton fluke due to a goof-up.

In that case, the only real turnout for the do-gooder is a cutdown of their precious assets along with the joy of becoming that much poorer. The good samaritan who keeps up such acts of charity will simply grind down their nest at a frightful rate. Before long, the oddball will end up with empty coffers and get shut out of the game entirely.

In a faceless and pitiless tract where no quarter is given or expected, the market is bound to display a welter of human traits in the raw. Amid the jostling and clashing, the naked traits on display run the gamut from grasping greed and sheer panic to flawed logic and snap judgment.

In these ways, the hubbub of the market springs from a fiery mix of reason and instinct, sense and bias, angst and impulse. Amid the antics of the plungers, the valley of finance is a cryptic place draped in blotches of transparency as well as opacity.

Even so, the mashup of reason and whimsy gives rise to a rash of convoluted patterns in the marketplace. A number of motifs emerge and persist over prolonged periods, while others surface and vanish in short order.

Sham Proof of Performance

The muddle of the market is highlighted by the hollow nature of a track record. In other areas of daily life, a record of accomplishment can serve as a testament to the prowess of the principal. By contrast to widespread belief, however, a ledger of such kind proves nothing at all in the financial ring.

Here is a stark emblem of the gulf that separates the land of finance from the world at large. In most areas of life, a successful outcome can confirm the competence of the principal. That’s the case in far-flung domains ranging from music and engineering to business and medicine.

On the other hand, the story is entirely different in the financial realm. Despite the veneer of credibility, a portfolio that has outpaced the benchmarks of the market says nothing about the talents of its handler.

The reason is that the feat can be attained with ease by just about anyone without breaking a sweat. Moreover, a huckster who makes a big deal of their apparent triumph is likely to be a swindler on the prowl. In that case, a quack of this breed has no qualms about fabricating a track record – which may be valid de jure but is worthless de facto – for the express purpose of conning and fleecing a flock of gullible investors.

There are several factors at work behind this wacky state of affairs. The short version of the story is this: A slick recipe can readily cook up a winning portfolio through sheer chance alone.

Tipsy Tales in the Bazaar

For the most part, the drench of folklore in the marketplace can be traced to the swill of soggy theories cooked up by a clique of academics in the 20th century. The sloppy fare dished out was in fact so spellbinding that the hosers came to don the mantle as the patriarchs of orthodox finance.

According to the humbug, any blob of useful information that crops up in the marketplace is snapped up and put to use at once by the mass of participants. By this argument, no single player has the wherewithal to outsmart the market as a whole.

A direct outgrowth of the hokey premise is the absence of information that can be used to predict the market. In other words, every asset is as likely to head upward as downward on the next move. As a result, the path of the market resembles the random walk of a drunkard who lurches around without rhyme or reason.

In reality, though, a host of patterns do show up in the marketplace. The templates are spotlighted by a potpourri of seasonal waves that arise over the course of the year, as in the case of heating oil or retail sales. Another sample involves the longer cycle of natural resources that wax and wane over the course of several decades.

Yet another motif relates to the inevitability of a blowout in the wake of a bubble in the market. From the converse stance, the same is true of a recovery in commercial activity after a recession in the economy.

In addition to cyclic molds, the market features scads of large-scale trends. A plain example involves the buildup of the budding nations round the planet. In fact, the tsunami of growth is a momentous event on a scale without parallel in the history of the world.

A second, and related, theme concerns the ramp-up of commodity prices during the first half of the 21st century. The tidal wave represents a lengthy uptrend overlaid atop the usual undulation of raw materials from one generation to the next.

Ball of Confusion

The financial forum is not a monolithic structure but a loose collection of linked units. The motley branches of the sprawling system span the rainbow from stocks and options to commodities and currencies.

On one hand, the welter of niches display a raft of common features. A case in point is the endless swing of the pendulum as each market goes from a state of being overpriced to oversold and back again.

On the other hand, the sundry branches also exhibit lots of distinct traits. For instance, each portion reacts to the outcrop of events in the real economy according to its own habits and rhythms.

For a second thing, the financial forum is not a static construct but a ductile system. An example involves the launch of a brand-new rig that adds to the existing roster of vehicles for investing in the marketplace.

The newborn vessel is sure to affect the dynamics of the market. For instance, the debut of a widget that complements the older props will inspire a tweaking of tactics by the jousters in the field.

An adaptive shift of this sort will of course alter the behaviors of the extant assets. By these means, the entire fleet of rigs has a way of morphing over time.

More generally, any nub of knowledge about the market begins to grow stale as soon as it’s unearthed and absorbed by the players in the field. In contrast to received wisdom, however, some of the changes might show up at once while others could take years or even longer to run their course.

Links to the World Outside

The financial forum acts as a window on the world at large. The fields in view run the gamut from industrial production and global trade to fiscal policy and military posturing.

For its part, the external environment also finds itself in a continual state of flux. To the extent that the financial ring reflects the status of the environs, the market itself has to turn and churn in tune with remote events.

Another shifty factor concerns the actions of the players on stage. Even in the absence of weighty changes in the environment, the gamesters in the fray have a way of rejigging their views and tacks as time goes by.

As an example, an advance in computer graphics might enable an avid trader to spot anomalies, compare assets, and project outcomes with greater ease and speed than ever before. In that case, the live wire can snap up the tool in order to gain an edge over their plodding rivals.

Another sample involves the upspring of brainy programs that take over routine functions. For instance, a software agent faced with a choppy market may decide to liquidate a clutch of stocks held in a trading account.

The automation of low-level tasks enables a human principal to spend more time on high-level work. A case in point is the analysis of global trends or the concoction of new-fangled strategies.

In spite of – and due to – the heap of challenges in store, a working grasp of the market is a precondition for thrashing out a robust plan of investment. A good example lies in an awareness of the techniques that have worked in the past as well as those that have failed to live up to the hype.

Mire of Market Fables

To sum up, the financial patch is a cauldron of myths and rumors mixed up with blinders and decoys in a plot teeming with slickers and sinkholes. The slew of stumbling blocks trip up the mass of short-term traders as well as long-run investors.

The swarm of obstacles shows up in multiplex fields ranging from debt and equity to forex and realty. The hodgepodge hampers all manner of folk, ranging from the rapt practitioners plying their trade in the pits of finance to the detached academics spinning tall tales from the comfort of their ivory towers.

Since the onset of the 20th century, the financial forum has been plastered by a blitz of blowzy studies and puffy pronouncements. The crux of the snow job includes the mythos of random walks along with the impossibility of excess returns.

Over the course of the generations, the whiteout of bromides has served to flummox rather than empower the fablers as well as their audience. Moreover, a lot of chestnuts are outright shams that do not just dodge the reality but rather buck the facts entirely.

In this tricky setting, the mantras of the orthodox faith turn out to be more misleading and treacherous than most people believe. Based on its simplistic view of the world, the faithless creed has pulled the wool over myriads of eyes and led the converts down the slippery path of stupor and misfortune.

The financial sphere is a field unlike any other in our daily experience. On one hand, the zone is a primeval place that draws out some of the worst streaks of human nature. The demons on the rampage run the gamut from blind greed and dumb fear to sheer whim and false hope. As if that were not enough, the jungle of investment houses an unlikely pairing of repellent traits: heartless rivalry conjoined with herd mentality.

Streak of Light

On the bright side, the circus of finance is not as mysterious or unruly as it seems to a lot of folks, be they greenhorns or oldsters. A prime example lies in the potential for a sober investor to outpace the benchmarks of the market by taking advantage of recurrent patterns.

Whatever trials the players might face in the arena, there’s no denying that the market looms large in the modern culture. Furthermore, the wealth of the world continues to expand in spite of the upsets in the marketplace from time to time.

In this vernal setting, the art of investment is fated to play a growing role in the new millennium. As an agent of progress, the financial forum acts as a universal hub for building up personal assets as well as meting out communal resources.

In coping with the din and mire of the marketplace, a dash of wit has got to be a lot better than a heap of bosh. For this reason, the shrewd investor takes pains to sort out the firm facts from the limp myths as the first step in tackling any type of asset in the financial markets or the real economy.