Hundreds of times each day, the financial media derive (from thin air), explanations for what is transpiring in the stock market. How do they know? The only real unbiased perspective on the markets comes from the millions of market participants. These investors have sifted through all of the available information and collectively established actual market prices at that particular point in time. No explanations required.
Explanations about daily financial market activity are nothing more than storylines that fit within a predetermined mindset that the particular media outlet is promoting that day. For instance, as I am writing this the Bloomberg headlines read “Stocks fall amid growing speculation a China trade deal is elusive.” In reality, this may have little to nothing to do with stocks falling today, but they have to keep you watching,(in order to sell advertising), so the explanations continue.
Explanations with No Meaning
As humans we crave reasons for events that allow us to process the information rationally. Unfortunately, this leaves us vulnerable to accepting explanations that sound reasonable but really have no meaning.
If you unravel most of the media explanations for the market going up or down, they focus on what I call, ‘cost avoidance.’ That is, we have almost a century of market history that points the way to investing for above inflation returns. The problem is, investment returns have a cost in the form of transient volatility. This volatility cues our emotions and after that…who knows? The financial media specializes in keeping these emotions keyed up, continually suggesting it’s possible to accrue market returns without a cost…WRONG!
Explaining Market Behavior
Many times, when we sit down with clients in meetings to review financial planning progress, they will ask why the market is behaving in a particular way. My answer, likely unsatisfactory to their ears, is always the same, “I have no idea but I embrace the value of market prices and you should too.”
At any given point in time there are literally millions of distinct and different explanations for market prices since every market participant has a say. Don’t settle for the reasons offered in quick soundbites. Start there. Ready for a real conversation?