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Oppenheimer Holdings Inc. Message Board

  • superbmindset superbmindset Oct 13, 2011 12:32 AM Flag

    The Zero-Sum Game

    We now have so many knowledgeable bloggers (acting as analysts) that prove their findings through repeating patterns and historical trends of line items on charts. Problem is they have no idea on how to spot stock market anomalies and momentum plays. But I am not going to try to further refute the multi-year proven theories of normally distributed information and chartist-like analyses they use.

    After all, the experience of 2008, with the collapse of firms like Bear Stearns, Lehman Brothers, Merrill Lynch and others, is proof enough, that the more knowledgeable analysts were not better at predicting the reaction of market forces for their own firms, when we relied on them to predict the outcome of other companies. Their expertise did not make them more omniscient. Their approach to the new issues that arose which did not fit the mold of past issues, was business as usual. As they continued to believe in the simplicity that industry standards were dictating to them.

    Today, there are two never ending paradoxes:

    The first is, that bloggers predictions on price movements are more often than not, proven correct. But their underlining reasoning is mostly proven wrong. So even though stock prices move to the direction they have predicted, this is due to the fact that investors follow their findings blindly…it is kind of a self-fulfilling prophecy.

    The second is that bloggers today are using the same old failed practices used by those old-school analysts. The bloggers conclusions are still based on those year-long industry standards and theories which ultimately led to the collapse of those institutions. They are not offering any new insights on how to gauge investors’ sentiment and market price trends.

    Point here being that these bloggers’ price movement predictions will turn out to be spot on until one day they won’t. Just like the experience of the analysts in 2008!

    But surely what they have learned over the years can’t be disputed. Can it? You plug an unambiguous number here, divided by an ambiguous number there and voila! That aha moment. This well-tested formula will accurately depict the price movements for the next three to six months, they’ll claim.

    These bloggers have learned the concept of simplicity. Doing so, after all, makes their readership more attractive. Problem is, they simplify things a few steps beyond what’s needed. Formulas oversimplifying complex ideas are good only in theory. In practice, there are a million stabilizing or destabilizing influences that affect these simplified ideas. The “noise” as they refer to it, is simplified way too much than what I believe is warranted.

    The bottom line here is this, the lack of expert opinions gives a free-ride to those who only analyze on weakness. Online forums, discussion boards and financial blogs, are now rife with members pushing the weaknesses of various stocks which they have obviously shorted. The problem, of course, is that they try to persuade, by swaying the focus on watching the prices and not on the current fundamentals and industry dynamics behind the prices.

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    • Hey Superbmindset, sentiment is at its lowest point while economic data are coming in strong! You had spotted this new anomaly back on August 3rd, right before the market plunge and followed up again on August 11th. But why are you saying that someday they will be proven wrong. Haven’t the past two weeks proven their bearish calls were proven wrong? And why “The Zero Sum Game?!” You are not actually implying that these bloggers – old school of thought analysts – who almost brought down the whole global financial system in 2008 – now unemployed – are the ones behind the current disconnect? Are you?

 
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