zerohedge.com / via Dana Lyons’ Tumblr / Oct 5, 2016 3:05 PM
Far from being a financial catastrophe as predicted, the aftermath of the Brexit vote has seen British stocks soar over 20% to all-time high ground.
As veterans of many decades in the financial markets, one thing we can tell you with a reasonable degree of certainty is this: using news events to guide one’s investment strategy is an impossible, and thus futile, endeavor.There are at least 2 reasons why. First, to the extent that a market’s reaction to a news event is “predictable”, one can never count on being able to exploit that reaction in a timely manner. There will always be a faster computer, a shorter cable or a more “plugged-in” insider to ensure one’s inability to take advantage of such situations.
Secondly, and probably even more challenging, is the fact that market reactions to news events are very seldom “predictable”. In fact, one can probably count on reactions to be counter-intuitive more often than not. Of course, a lot of that has to do with traders’ collective positioning going into a news event. If traders are over-loaded to one side or another on the occasion of a news event, then most likely those traders will end up getting burned, no matter the outcome of the news. The market, after all, reliably and consistently doles out the most pain to the greatest number of participants. That’s what makes news-based investing so difficult. Often, the market’s reaction will have nothing to do with the tone of the news, or even go directly counter human natural reactions.
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