Effects matter more than causes.

Don’t get me wrong this has not always been the case.  But you know that whole market can stay irrational longer than you can stay solvent thing?  That is what we are witnessing right now.

In the past you could look at data or events and predict what effect it would have. Things have changed.  We can no longer say good number are good or vice versa.  We can’t say Europe will strangle the US markets.  That Iran will cause oil to go to 150.  We can’t say that the US recovery will pull the World out.

When I listen to people talk about predicting P/E ratios, forward earnings, unemployment they worry more about those numbers and not what it is going to do to the market I get really worried.  Theory is getting in the way of practice big time.

I am not saying it is a worthless but like any analysis if the effects are different than anticipated it is time to go back to the drawing board.  Stop thinking about the data and concentrate on the effects.

The market will return to rational but will you have wasted one the greatest learning opportunity of all time and will you have any capital left to deploy?

I can’t remember a time when there were so many mixed signals, this will cause more people to do what they have to do and less what they want to do.

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  • Anonymous

    Isn’t this the main argument for technical analysis?  I’ve to view fundamentals as data to use on a “second derivative” type basis (i.e. if a market sells off on bullish news it’s evidence of a bearish trend), like Soros’ theory of reflexivity.  I trade futures and usually don’t hold trades for more than a few days so my experience may be  atypical but for me your post is spot on.

    • Technical analysis creates at least sign posts and sometimes better.

2 Responses to Effects matter more than causes.

  1. Anonymous says:

    Isn’t this the main argument for technical analysis?  I’ve to view fundamentals as data to use on a “second derivative” type basis (i.e. if a market sells off on bullish news it’s evidence of a bearish trend), like Soros’ theory of reflexivity.  I trade futures and usually don’t hold trades for more than a few days so my experience may be  atypical but for me your post is spot on.

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