If, like me, you listen to La Première (Swiss radio station) in the morning, there is a 30-second stock market commentary every day. The scenario is unchanging: the journalist gives the level of the indices of the previous day, those of Asia (which has just closed) and the opening trends in Europe. Then an 'expert' (from a local bank in general, Swiss or foreign) explains the movements. Decreases: fears of instability in Ukraine, election in Japan, € under pressure. Increases: good corporate results, leading indicators in the green, € under pressure. I'll leave it to you to find the thousand examples that remain. And it annoys me! Why?
Because I can find reasons for the stock market to move in one direction or another every day and can therefore justify, after the fact, anything. But is it really worth getting upset about it, that's the question. I think so. First, it instills in people the feeling that stock prices are predictable, which they are not. Explaining them ex post is too easy and gives the uninformed listener the feeling that bankers know something that we don't know, that they have a special science, privileged access to information, which allows them to read the future.
Then these same listeners will be surprised when we tell them that the stock market, by Jove, did not go in the direction we thought and your savings, Madam Investor, have melted by 20%. Do meteorologists tell us where the raindrops will fall on our terrace (first the left corner, a little more to the right, then the drops will spread in a continuous line towards the right back corner of the terrace before…)? They tell us that the pressure is dropping, that the temperature differences will cause rain in this or that region, but that their reliability index is 80% or 50% or even 30%.
Prediction is a difficult science, especially when it concerns the future (Mark Twain). Bankers would do well to get this into their heads and lay their cards on the table: they know nothing about it, and to pretend after the fact that there was anything predictable in past news is at best a distortion of the truth, at worst a form of fraud.
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Thank you Armand for this article. The truth is that 99% of bankers know less than their clients, because not only is the stock market unpredictable, but especially because they are conditioned by their own system. They can only see through their glasses. The 1% of bankers who remain load the dice like Goldman Sachs and make a lot of money.
Hello Armand,
Your weather analogy reminds me of the following riddle:
– Do you know why God invented economists?
– To make the weather forecasters look good!
Good morning
The more I'm interested in the stock market, the more I feel that the best way to win is to react to economic news. Making forecasts on this or that company can be a solution, but I prefer to interpret the news.
Banks can be decision-making tools through their analysts and brokers. But one should not neglect one's intuitions.
Ludovic
I would even say that we must react to current events… in the opposite direction 😉
Hello Jerome
Are you interested in the telecoms sector?
I believe there are positions to take on Numericable or Orange.
Ludovic
Good morning
I am not a big fan of telecoms and furthermore these shares do not correspond to my strategic criteria (increasing and sustainable dividends).
Well said!
I am from Quebec and every evening on the radio, a generously paid columnist tries to explain why the Dow went up or down 50 points during the day and what we can expect for the next day... Pure waste of time... One day, according to him, it is because of the crisis in Ukraine or because of the unfavorable weather of the last few months and the next day it is because of the situation in Iraq or the general uncertainty on Wall Street...
In the end, what does it change? This useless information does not serve the investor who must choose which security to invest in.
Warren Buffett said in one of his letters to shareholders:
(Free translation) "If you can manage not to watch stock prices and listen to stock market commentators during the weekend, try to do the same during the week!"
THANKS,