“Markets Are Debates Between People Who Are Speaking With Money”

You can file this masterful analogy away among some of the greatest ways the market has ever been described.

My friend Heidi Moore has outdone herself with this (emphasis mine)…

From the Guardian:

To an outsider, financial markets seem to be about math: a wall of intimidating numbers, red and green and manic, scrolling as pundits shout on TV. But that’s not what the markets are really like at all; they’re more like debates between people who are speaking with their money rather than their voices.

Here’s how it works: investors or traders take a side on an investment – as if they’re picking a baseball team they’re going to put a lot of money on – and then compare their arguments. Do you believe Apple will overcome the doubters and the haters? Then you put money on it and watch the stock price: if it rises, people agree with you. If it falls, they don’t. Good news makes the stock rise; bad news makes it fall. If you can’t tell whether the news is good or bad, say, if an executive leaves suddenly, then look at the stock price. If it rises, that means that a lot of other people thought, “good riddance”.

Just as in baseball or football, there are names for the teams. There are factions: shorts and longs, bulls and bears. Shorts are people who don’t believe an investment will succeed; they are the spiritual brothers of bears, who believe that markets will go down in value. Longs are people who buy an investment believing it will do well; their brothers are bulls.

With gold, there’s another group of fanatics in the mix: goldbugs. Just as Justin Bieber has “Beliebers”, and One Direction has “Directioners”, gold has goldbugs – fans of the shiny metal and its everlasting claim to value. In the same way that Beliebers will troll you to death if you criticize their hero, goldbugs often brook no dissent that gold is the best and safest investment there is and that its future is – excuse the pun – very bright indeed. For goldbugs, any stumble in the price of gold is just a small stumble on the way to greater glory.

That about explains it. It also explains why I rarely get involved in actual debates with people who self-identify as belonging to this team or that – they have already made up their minds and spend most of their time searching for data and facts that back up what they already think. As such, they are embarrassingly terrible investors and I don’t have even a minute to help them find humility or flexibility.

Brava, Heidi, you’ve nailed it.

Source:

Gold crash is an instructive whodunit of financial markets (Guardian)