The idea that markets are somehow
forward looking needs to be investigated,
This idea that people change their behaviour when their situation changes is known as reflexivity and because stock markets are really only the sum of people’s behaviour if that behaviour changes so does the markets. This leads to feedback, because as markets adapt to new behaviour so they present participants with a new situation, and reflexivity dictates that people change their behaviour once more. We can summarise this: people are reflexive, markets are adaptive and they go around in a dance which never ends. There is no perfect way of predicting what will happen in stock markets, there is no specific, definable outcome. In the jargon when we invest we do so in conditions of uncertainty.
Uncertainty is the key term: when we read, anywhere, of someone confidently predicting the future we should immediately fire up our bullshit deflection system. One of two things is almost certainly happening: either the prediction is so general it has virtually no chance of being wrong – and is therefore worthless – or its only chance of being correct is serendipity. In a world where everyone is making predictions someone will predict everything, but there’s no need to reward them for picking a winning lottery ticket.
