Thursday, November 22, 2007

What Moves Markets

Some useful thoughts on the mysterious forces that move markets from Roger C. Gibson, author of Asset Allocation: Balancing Financial Risk:

"Thus, when it comes to predicting short-term stock market movements, it is not of any value to know whether we are at war or at peace, have a Republican or a Democrat in the White House, or have been in an economic expansion or a contraction. What, then, moves the market? It is moved by information relevant to the pricing of investments that was not previously known. In essence, it is the surprises that no one sees coming that trigger price movements to establish new equilibriums in the markets. These surprises themselves are random events. Occasionally there are more good surprises than bad, and we have a bull market. Other times the reverse is true, and we have a bear market. There will always be bulls and bears, but the evidence indicates that there is no consistent way to predict the turning points."

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