Jeff Miller | May 04, 2018 01:27AM ET
In Daniel Kahneman’s excellent book, , he investigates two systems of thought. The first is quick and automatic. The second, more focused on complex issues. Both employ heuristics, but in different ways. Both involve non-rational thinking.
While I am borrowing the title and the general approach, it is not a perfect analogy. So much volatility driven by minor snippets of news. It is time to think about why.
Market Heuristics
The human desire for an explanation for everything drives social media. There must be a reason! The PBS NewsHour show today attributed the stock rebound to economic news. Forget that such news was reported either before the opening, or in the first thirty minutes of trading. Other sources assigned different explanations, but none were very credible.
In the last two weeks we have seen multiple examples of “trading fast.” Here is how it works.
The least valuable heuristic treats the market as a war between two sides. This approach offers comments like the following:
And many similar statements. This is an entertaining way to (over-)simplify the market. We can all visualize a two-player game. Few can think about the wide variety of groups that are actually represented. Let’s turn to some facts.
The market participants
Those focused on daily news and an excessively frequent review of account statements might make a trade. More importantly:
The events
What is the rational interpretation of key events? This is just a starting point for astute readers.
Conclusion
If you try to “trade fast” you are competing with top-flight competition. If you have analyzed stock values, and can ignore the noise, you may find it very profitable to “trade slow.”
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