Narrative Rules

After a string of up days, most markets were showing red earlier today. We never know what the daily action of the markets will look like in advance. Whether you want to call it a random walk or the madness of crowds, those of us who toil in the capital markets can rely on no two days being the same.

However, one thing that occurs regardless of circumstances, data or specific events: The endless attempts made to explain the day-to-day in a narrative format. This futile gesture seems to occur regardless of the overall circumstances. Investors want an explanation that gives them comfort, even if their portfolio fails to do so.

Hence, our love affair with the “if-that” news dynamic. IF this occurred, then THAT was the natural reaction in the markets. One of the few guarantees that can be made in investing is that you will be subject to an endless stream of this sort of explanation.  

via:http://www.ritholtz.com/blog/2014/02/narrative-rules/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29