Investing Is Neither Simply “Science” Or “Math”

“Davidson”  submits:

Investing is not science and math. It is far more judging management’s actions in the context of a fuzzy very broad view of human activity which we call economic activity. Coming to a perspective of the whole is always more a collage than pieces fitting snuggly together. Nothing is ever a perfect fit. What often is unsaid the ebb and flow of the background noise. By background noise, what is meant is the ebb and flow of market psychology which can have an economic impact of its own. Even if it is not long lasting, market psychology, if prolonged in one direction, impacts market behavior if enough believe in it. One has to always look through market psychology and decide if it is supported by economic trends even as it can have an impact on these trends. It is sorting out which information is most important and even in the face of building pessimism/optimism make decisions which are more contrary to consensus to locate the better risk/returns. The past 3yrs has seen an enormous amount of ebb and flow. Through it all, key signals have remained very positive.

It is never one indicator but a mix. Hindsight helps bring a better understanding than could had at the time. It is a tool one should deploy as often a one feels the need. It requires reviewing the indicators and their context at the time using outcomes not known at the time. One keeps track of what investors/advisors are thinking by saving articles that capture the mood of the current market drivers. Some days one will find 20+ which seem relevant at the time. Hindsight will always identify some as more important than was believed the first time one saw them. Information, especially investment information, is never as clear on the first reading. It always becomes clearer in hindsight.

A good example is the interplay between the Chemical Activity Barometer (a measure of manufacturing activity) the Trucking Tonnage Index and the Intermodal Rail index(measures of goods transport and end demand) and the Trade Weighted US$ Broad Goods&Services Index(a measure sensitive to trade and capital inflows/outflows vs global environment). Little is simple. Why did Intermodal Rail plunge while Trucking Tonnage rise? They are usually well connected. Why did the flattening of the Chemical Activity Barometer not correlate with the other indices? We can make sense of it all only by examining investor thinking at the time.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests ...

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