Have Stocks become a Coping Mechanism ?
What if stocks are just a coping mechanism to the pandemic, a manifestation of crowd behavior, with little or no attachment to value or any measure of economics. If true, as we approach the end of the pandemic, and the end of coping, watch out.
Later today I will talk about the book “The Wisdom of Crowds”, written 17 years ago. It has been years since I read it. This morning I pulled it out of my bookcase to see what might be shared, There is a chapter on crowd behavior in stock markets which seems applicable to today’s markets.
It is almost as good a book as “The Bear Book” by John Rothchild written 24 years ago. The biggest take away in this book, “don’t tell anybody you are short”.
I took a quick scan of James Surowiecki’s book, “the Wisdom of Crowds” and the chapter on markets.
So here is the quick take…
Does the retail investor know what he or she is doing?
Is the combined action of retail the best way of determining value?
Research would suggest yes, but it depends on the anchors.
Who are the anchors in today’s markets? Is it the FED’s Powell, is it Trump’s tweets, is it Goldman Sachs, is it Black Rock, is it CNBC’s Fast Money, is it Reddit’s conspiracy faction ?
So the quality and direction of what the anchors are saying makes all the difference in the world in terms of the crowds behavior.