This search for information is abetted by the business news channels and newspapers, which try and answer questions like why the markets fell or rose on a certain day.
MUMBAI: Investors who trade daily, popularly referred to as day traders, have to time the market. And in order to successfully time the market, they closely follow the predictions and rumours that keep appearing almost daily in the business media. They just have to have an opinion on which way the stocks would head during the day.
This search for information is abetted by the business news channels and newspapers, which try and answer questions like why the markets fell or rose on a certain day.
Nassim Nicholas Taleb in his book Fooled by Randomness, says, “In that sense, the description coming from journalism is certainly not just an unrealistic representation of the world but rather the one that can fool you the most by grabbing your attention via your emotional apparatus - the cheapest to deliver sensation.” News on stock market fluctuations fulfils this criterion. “People do not realise that the media is paid to get your attention. For a journalist, silence rarely surpasses any word.”
Also, investors, analysts and the business media at times go overboard with their focus on quarterly earnings. At times, when companies miss the earnings estimates by a small target, investors tend to react as if the company has almost gone bankrupt and sell the stock which drives down its price. And the business media is certainly to be blamed for some amount of overreaction. As John Allen Paulous points out in his book A Mathematician Plays the Stock Market, “Overreactions are abetted by the all-crisis-all-the-time business media”. And this is really uncalled for.
“Just as beauty and academic quality don’t change as rapidly as ad hoc lists and magazine rankings do, so, it seems, the fundamentals of companies don’t change as quickly as our mercurial reactions to news about them do.”
But then, day traders are addicted to trading. For day traders, Benjamin Graham, the guru of Warren Buffet, had some sane advice, “Mr Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option”.
‘Mr Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom that you will find useful. If he shows up someday in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr Market, you don’t belong in the game”.
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