”As their acceptance increases, their reliability tends to diminish”
This is one of the greatest ironies of the stock market and it permeates all spheres of life.
This is one of the greatest ironies of the stock market and it permeates all spheres of life.
When theories are about to be formed we resort to data from the past. Upon examining this data, we tend to draw our explanation of the past.
Once this explanation of the past is generalized enough to form a theory that can guide the future and becomes generally accepted,
Once this explanation of the past is generalized enough to form a theory that can guide the future and becomes generally accepted,
its reliability starts to decline.
I found this mystery in the stock market.
Here's why it happens that way:
Price is a conveyor of information, many times you don't need to know what has happened to an asset all you need to do is see what the price is saying.
I found this mystery in the stock market.
Here's why it happens that way:
Price is a conveyor of information, many times you don't need to know what has happened to an asset all you need to do is see what the price is saying.
The price says it all.
When data on price and other variables are constructed to form a theory that will serve as a guide for the future, they are pure and unabridged.
However, the moment such theory is ratified as indeed a worthy guide for the future and we all adopt it,
When data on price and other variables are constructed to form a theory that will serve as a guide for the future, they are pure and unabridged.
However, the moment such theory is ratified as indeed a worthy guide for the future and we all adopt it,
the price of the asset immediately adjusts to incorporate that new knowledge.
Let's say what we are looking for is a strategy that can help us tell the best portfolio construction and what asset should be in it.
Let's say what we are looking for is a strategy that can help us tell the best portfolio construction and what asset should be in it.
When we are going through the rigour of building the theory, the price is independent and none reflective of any conclusions we may have. But the moment that we reach a conclusion and make our findings public, something starts to happen.
Investors in the market are rational and everyone is looking for something that could work for them. In their search, they found our conclusion. Let's say every investor in the market found it as well and bought into it.
What would happen afterwards is that before the end of the day, the price of that portfolio would have incorporated the new information because demand would either rise or decrease depending on the conclusion.
In which case it won't make any sense again to still rely on
In which case it won't make any sense again to still rely on
the conclusion we just reached.
This is the meaning of ”as their acceptance increases, their reliability tends to diminish”.
This is the meaning of ”as their acceptance increases, their reliability tends to diminish”.
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