You Heard It Once and Now You’re Fooled

I think anyone who works in markets gets more jaded and more skeptical at a faster rate than those who don’t. Like old man jaded. A get-off-my-lawn-grandpa kind of way.

Lately, I’ve taken a new approach to all the things people say in markets. The adages and phrases that have been passed down for generation after generation. Netflix is down and Disney is up. Obviously that’s a big money rotation from Netflix’s streaming service to Disney’s streaming service.

“Just wait until the institutions start buying Bitcoin.”

That’s my favorite. “tHe InStItUtiOnS.” As if a little ferry dances around markets and taps her wand on an asset and suddenly the magical institutions start buying.

There are countless examples. Even a trendline break in technical analysis comes to mind. I am a chartist myself and regularly mark down levels I see as important on a chart. But I’m never not amused when people see a trendline break and suddenly, “it’s going to ZERO.”

As if it were that easy.

There is no easy saying that always makes money. There is no phrase that even outperforms just 51% of the time. Buy the rumor, sell the news. I love that phrase and joke about it all the time with friends. But really? I have seen people sell the rumor and sell the news. Or buy the rumor AND buy the news.

“Sell in may and go away!” Another classic.

The other day I was chatting with a few friends about the recent rise in gold. Gold is breaking out of a five year base. Meaning it has essentially gone nowhere for five years. Now, today, it’s nearing its highest price in five years. We’re taught through adages and phrases that gold is a safe haven asset. If it’s moving we must be worried. Someone must know something scary we don’t.

That’s what we hear. And somehow it just becomes believed. Maybe because it sounds good, it rings in the ears. So we take it as truth without much scrutiny. But the market does not work like that. It is not that easy. I am often reminded of an Abe Lincoln quote,

“You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.”

Abe Lincoln

I think Abe had that right in terms of inspiration. It’s great for such a figure to say that you cannot fool all the people all the time. But after the financial crisis, hedge fund overlord David Einhorn wrote a book. He titled it, Fooling Some of the People All of the Time. That’s more like it. That’s what markets do. They just fool people all of the time, day after day, week after week. Abe can ditch the rest of his quote.

For the recent run in gold, what if it has nothing to do with an impending bear market. Or recession worries. What if it’s entirely based on inflation fears. Maybe inflation is about to turn the f up and people want to preserve their money in an asset like gold. One that isn’t dependent on the Fed. Well, in that case, technically you could have rising stocks and rising gold. Voila.

I guess what I’m trying to say is that phrases and adages are fun, but they are also lazy. There is so much more analysis and thought to be had. Every time I hear a generic phrase related to markets or investing, I visualize all the reasons why that phrase is wrong in that moment. There are so many ways to spin a story, a correlation, a connection. Forgetting that is how you get fooled.

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If you missed it, I wrote about this concept earlier and called it, Don’t do dumb things in seven seconds.

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