Useful info rendered useless?
Or, How we end up over-rating events.
A week ago, the Nifty future was placed at 5102 and everyone was in a tizzy about all the events ahead of us that, they said, should impact the trends for sure. There were so many of them that you would have been hard pressed to find even a single fellow to say that the events don’t matter. After all, stuff like IIP numbers, Inflation numbers, Greece Election, Bond auctions in Spain, Italy etc, RBI policy , Fed meet, G20 meet, Germani PMI etc.etc. That is the list that I know, perhaps there are more that I don’t know about.
Well, a week from that plethora of data, the index is still at 5102! So what happened then? Did all those events get cancelled? No sir. They all came out with their stuff dutifully, on cue. But the market has simply chosen to ignore it! What does that mean? It means the same thing that has been the truth for ever and shall continue to remain the truth forever- the MARKET DICTATES, not us. Just because someone or the other states his or her views firmly or lucidly or even loudly, it does not make it right!
Now just go back a week and think how many times you told yourself that the market will decline if Greece does this or RBI does that but it may rise if IIP is thus or inflation is some other way? I am certain we are all guilty of that to various degrees. But the fact of the matter is that all those view points and perspectives that we based on different elements have been completely useless! Note that these numbers were all useful information in terms of so many things but from a market moving perspective or even from a forecasting perspective, they were completely useless!
That brings me to the main point- which is, it is really market’s response to the news that is most important. What we think is largely irrelevant and indeed completely inconsequential. A whole lot of people would have thought that RBI not cutting rates was a negative. But as long as the collective thinking of market is not that way, prices just won’t decline! So most of us would be sitting on shorts that don’t perform and growing nervous by the day as we await a decline from the market. Realize that in that case, you are trying to dictate to the market. Look up at what I have written. THE MARKET DICTATES! We should simply follow. Information is just that- information. Don’t overestimate its value. Instead, value what the market DOES.
This episode brings to mind something similar from an earlier time. I dont know how many will recall this, but for a while the market was greatly taken up whether Laalu Prasad Yadav would be convicted by the court in the Fodder scam. Market heaved several times, producing a lot of bilge that skewered a lot traders in the enusing volatility. Finally it ended without even being noticed that it ended. Something else would soon take over. another such incidence was the Jayalalita conviction episode. A third which comes to mind is the bribery scandal of Harshad Mehta and the PM. More recently, noise on whether Chidambaram was culpable or not.
Point is, there will always be some event or the other. Then it will blow over, something else replacing it in the minds of people. Its almost like people need these kind of props, in order to take some decisions. Their conflicting opinion about the event produces the volatility. But soon it will pass. Bunker down when this occurs, is the simple solution.