Cultivating, retaining and sustaining another’s business does require a bit of hubris which could be viewed as confidence. And confidence is necessary when what you do with a client’s money can mean the difference between their security or destitution.
I pulled this from tonight’s Fin Times from some in depth look at the ‘87 crash...Pro if you have been doing this for 15 years you wouldn’t remember!
“So crashes can be great buying opportunities, but only if markets reach favourable valuations and if there is reason to be confident in the underlying economy.
Can they be prevented? Markets are different now. Average daily volumes on the New York Stock Exchange alone have increased tenfold since 1987, the venues on which stocks can be traded have proliferated and the speed of trading is unimaginably faster. The range of hedging opportunities using derivatives is much larger than it was.
The view from the floor is that the improvements in technology will not prevent crashes. “But it will help them happen that much faster,” says Mr Cashin, the veteran broker.
Andrew Lo, an economist at the Massachusetts Institute of Technology, argues that these developments have also made crashes more likely. “We have a much more well-integrated and well-connected set of financial markets. Disruption in one market can very easily spill over into other financial markets.”
He draws comparisons with recent events, which saw a number of quantitatively managed hedge funds – which use complex mathematical algorithms to trade swiftly among different stocks and asset classes – suffer huge losses in August amid the fall-out from the credit crisis. Portfolio insurance, Mr Lo suggests, was “a microcosm of what we see today, writ large”.
Further, a growing field known as neurofinance attempts to apply insights from cognitive psychology to decisions made by investors. These insights suggest that the human mind is “hard-wired” to make the kind of collectively irrational decisions that can lead to crashes such as Black Monday. No amount of technology will change this.
According to Richard Peterson, author of Inside the Investor’s Brain, when markets are rising, investors show primitive “chasing” behaviour, expecting gains. Once gains fail to fulfil their expectations, the loss-avoidance part of the brain is engaged. This is when herd instincts come into play and sentiment grows more negative. Then comes panic – and the crash.
These factors are constant. Mr Peterson suggests that investors can try to be more emotionally self-aware, but this is difficult and requires behaviour that many people find unnatural.
Mr Lo puts it differently. “Our brains are hard-wired and optimised for decision-making on the African savannah 100,000 years ago,” he says. “If we are being chased by a sabre-toothed tiger, it’s perfectly appropriate for the brain to get a shot of adrenaline and run like hell. Unfortunately, that won’t help you on the floor of the NYSE when the S&P is down 20 per cent.”
In your opinion, is knowledge or fact based opinion “self pride or over confidence”?
I think if you look at my statements on the subjects of finance, you’ll see that I obviously know what I’m talking about. I may have a differnet side of the market opinion, but what I discuss is not a bunch of made up nonsense?
Fair enough, I can sometimes come across a bit smarmy, but that is also just my sense of humor too, much like most freepers actually?
Simply put, I’m not going to sit here, let a bunch of folks say the dollar is going to hell forever, the US is lost, and that we are a third rate nation, and that investing in gold and china are the answer. Some folks here, don’t realize that their current investmetn strategies are going to put them in serious financial jeapordy.