Read the newspaper explaining yesterday's action for entertainment, not education

Investors have an inherent need to make sense of the world around them, and for that they need stories. Stories that engage and explain. “The initial point I’d make is that our minds work very hard to make sure there’s a cause for every effect. If we see an outcome that we can’t explain, it’s like an itch that’s demanding to be scratched,” says Michael J Mauboussin, the chief investment strategist at Legg Mason Capital Management, the ninth-largest asset management firm in the world, with $703 billion under management as on September 30, 2009. (That is a little over four times the current size of the Indian mutual fund industry). OK, business news channels and newspapers try and fulfill this investor need for stories.

But are they really effective? No, if one is to believe Mauboussin. As he writes in his best selling book More Than You Know – Finding Financial Wisdom in Unconventional Places, “The press sounds a lot like a split-brain patient making up a cause for an effect, and we investors lap it up because the link satisfies a very basic need (of stories)… Read the morning paper explaining yesterday’s action for entertainment, not education.” Mauboussin’s latest book Think Twice – Harnessing the Power of Counterintuition is just out.

More

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

One Response to Read the newspaper explaining yesterday's action for entertainment, not education

  1. MrDalal says:

    “The initial point I’d make is that our minds work very hard to make sure there’s a cause for every effect. If we see an outcome that we can’t explain, it’s like an itch that’s demanding to be scratched” – agree, 100 percent.

    Its funny, just look at yahoo finance daily headlines. market is up or down – they ALWAYS attach a reason to it. try it when the US markets are open.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s