Do you ever also ask yourself how it is possible that the financial markets are so stupid? In the big amount of investors, the rationality should prevail and the market should move rationally and therefore predictably. It is not like that. If you have seen the movie "The Wolf of Wall Street" you know why: Too many times in too many places on the earth people who know nothing about the economy are selling stocks to people who know even less about trading and they are really buying them. The main hero of the movie was able to sell anything which he documented by the fact that he would convince you to buy your own pencil from him. He was logically targeting the uneducated clients when trading. Maybe you are telling yourself that it is “only” a silly movie, beautiful women, sex, drugs and expensive cars. Or maybe you are telling yourself that it is past because the robots are trading now and neither their algorithms nor the stock market is what it used to be. But that is not true.
I am often getting convinced about that first hand: An unknown person from the street was calling me last week saying that he is coming from a trader with securities and that he as an amazing business for me. I am supposed to buy stocks of Tesla. I will supposedly make 20 % in two months. He was surprised I’m not interested. And since the man wasn’t anticipating that he managed to call analytic company he kept adding more and more details and nonsensical arguments that were impossible to listen to. There was no reason to talk to him about stocks because he was selling them just like he would be selling office supplies or doughnuts. It was useless to ask what I would do if the CNB ended the interventions and the exchange rate of the crown against the dollar would jump by 15 % in a month already. That man probably never even heard of CNB.
And specifically, those people are tilting the financial markets away from rationality. And there is many of them. So to claim that financial markets are behaving rationally is only a myth.
They won’t be buying stocks when they are long-term all-time high! Except that is exactly what are people doing today. Stocks are once again higher today. Frankfurt’s stock market is higher by 1.1 % and Paris’ one by 1.4 %. Index of German stocks was on 9000 points a year ago and now it is almost on 11 800. That is almost double the amount in comparison where the stocks were five years ago. Tesla has been growing since the beginning of the year and that is working in the advantage of seller except at the same time it is almost on 5-year maximum. To make 20 % in two months is really extremely big risk and really high chance that it won’t work out. When something is really up it is rather the argument for selling not buying.
So why are the markets growing today? Because the American president D. Trump said that he will make the biggest tax reform in the USA since the times of R. Raegan. People are expecting great things like lower taxes and therefore better conditions for businesses because people will be hypothetically buying more and the profits and dividends will be higher. But does it have to work like that? It doesn’t! It depends on how the taxes will change – and nobody knows that. Greece is the example of this. You lower the taxes under the liminal level and you can end up with bankruptcy... So analogically to this example: Buying stocks today because of Trump is an argument like one Greeks would use.
Vladimir Pikora, Marketa Sichtarova
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