Just Tell Me The ‘Why’
No matter how badly we want to answer the "Why?" question, it's almost never a good idea to attribute a given day's price action to a single, proximate cause.
While it's all too easy to point fingers at readily identifiable macro catalysts (e.g., Evergrande or generic "inflation worries"), it's never that simple. Especially not in modern markets, where mechanical flows play an outsized role. Indeed, on many days, the price action is the story.
To be clear, there's no question that the worst da
“Especially not in modern markets, where mechanical flows play an outsized role. Indeed, on many days, the price action is the story.”
This is such an important point. Every up and coming trader should ponder that. As should we old timers, though it’s a harder sell for those who continue to believe that there is some set of immutable rules, laws and relationships which dictate market action.
Thanks!
I used to think there were fundamental reasons for market moves on a daily or weekly basis. No more. Sentiment and flows drive markets over the short to intermediate term. If you get those right, you are generally ok for that time horizon. Fundamentals kick in on a much longer time frame.
@RIA – I went through the same process. It was very liberating when I finally came to the conclusion that P/E ratios are simply thermometers showing demand which means that flows are the most important thing to focus on.
Though I’ll confess that I do ponder relative valuations when comparing companies within an industry group. So old-fashioned, eh?
Good article!
@derek, I still think there is idiosyncratic information to be found by comparing a company to its close comps and its price action to theirs. Anyway, as long as enough investors think it matters, then it will.