Tuesday, January 22, 2008
Bird & Fortune's sketch, Meeting the Advisor provides some hilarious insight into share-price gyrations, and is a must for anyone in need of a laugh, reflection upon participant behaviour. The Particpant, warranting examination in this instance, is the Media. Last evening I found myself unable to watch more than a few minutes of the BBC since the shock, horror, and seeming indignation about the falls by their reporters, analysts, news readers, and chosen talking heads all reflected the inherently bullish bias of human beings in general the media in particular.
There are, it must said, different views on precisely how to react to the Hang Seng shedding 10% in a night,particularly after it shed 5% the night before off of whatever it shed prior to that. Some would say "Fuck Fuck, Holy Fuck!!", and indeed view it at as some divine (or devilish) conspiracy against thy person, or the fault of illegal immigrants and married gays. Others, such as your truly hearing such news on the World Service delivered with said fear and indignation, though "Well what the fuck did you expect when the Hang Seng had rather recently mounted a Ducati and run up 50% in 40 trading days?" between Sept & Oct.
The rub, of course, is: Where was the righteous indignation or wholesome doubtful sobriety, when it was running up? Is it a "threshold" phenomena where the persistent upmoves are too small irrespective of their run or is it humanity's inability to keep the discomforting lognormal distribution that historically characterize equity prices (excepting perhaps the 2005 low-vol hiatus) in proper historical context? This explanation has merit for the amateur, but is somewhat inexcusable for the professional news organisation, de facto charged with shaping public opinion in regards to understanding such phenomena.
Auntie Beeb is certainly not alone in avoiding the casting of doubt or incredulity upon moves up, and fear and/or indignation on the way down Call it the failure of incremental processing or an unwillingness to suggest that the proverbial camel might be in the process of being overloaded. YET, in the realm of politics, the Beeb is more-than-willing to take editorial liberty and [rightfully IMHO] question for example the application of Collective Punishment of Gazans by Israeli's, or the asymmetrical application of retaliation by Israelis vis-a-vis Hamas mortar barrages. Why, then, do financial editors - even sophisticated ones - find it so difficult to cast doubt upon an unclothed emperor or otherwise reasonably obvious non-sequitir in financial markets? Why cannot a move down be treated with the same non-chalance as the up-move, irrespective of whether its compressed in time? Why does one never hear perhaps the most essential pearl of wisdom (after a rise or run of rises in excess of fundamental change): "other things the same, stocks offer a LOWER expected return now, than they did before.." or following a large fall that : "...stocks now offer a HIGHER expected return in the future than they did in the recent past..."