Markets have indeed been strange for some time now. Most investors are confused about whether to sell, or buy, or panic, or simply visit cash and steer clear of the craziness.
However, if you think more closely about things, you might arrived at the final outcome that financial markets are always strange. Investors and also the market are simply not … normal. So why do we are saying this? Let’s look at five explanations why markets and investing are just plain weird compared with other industries:
Investors/analysts attempt to predict the long-term future
If I were a meteorologist, and that i tried to tell you what the weather would be five years from now, you would simply laugh at me. If I said who had been going to win the Stanley Cup in 2022 (well, not the Maple Leafs) you wouldn’t give my prediction time of day. But stock analysts routinely create financial models to determine where a company’s sales and earnings are likely to be years in the future. No, these predictions are not accurate, as you may have expected, but that does not stop investors from extrapolating on them and changing stock valuations according to these predictions. It doesn’t appear to matter that these predictions are wrong: Investors act on them anyway.
In investing, bad news is good news
What’s the best thing that may occur to markets this week? Well, no doubt the marketplace would soar if there were some bad news from some key U.S. economic data. Say what? Yes, investors want some not so good news, so the big old nasty Fed doesn’t raise interest rates. Name another industry that actively cheers not so good news. Strange, but true.