Let’s face it. Predicting anything is difficult. Predicting the financial market is pretty much a fools game.
We can have all kinds of information that is pointing to one outcome.
We can say, “I know for a fact that XYZ is going to happen. 100% for sure.”
But… then it doesn’t happen. Why is that?recent Bloomberg article, this issue is discussed as “Asymmetric Information.”
The idea is “when sellers know more about products than buyers do (or vice versa), markets can break down. It doesn’t matter how rational people are, or how well the markets are set up — asymmetric information throws a wrench in the works.”
For today’s times this totally makes sense. We are spoon-fed information all day long. We hear about the market in China, terror attacks in Syria, corruption in Brazil, and on and on. It’s a never-ending streaming feed of information.
This has caused an unbalancing of knowledge between sellers and buyers. Basically, no one knows what the hell is going on.
That includes me. When I look at revenues, debt loads, projections, etc. of companies that should be bankrupt… but are trading at multiples of their value… I get completely confused. (Cough… Tesla).
Maybe I am missing something? Maybe everyone else thinks that these extremely over valued companies are all of a sudden going to report earnings that blow their projections out of the water? I doubt it.
And it’s not just the US.
European stocks have completely recovered since Brexit. Most analysts were calling for an all out collapse. They were wrong. (Although they’ll probably be right on a longer timespan.)
India, the worlds fastest growing economy, just lost a $1billion investment from GM, Ford and Fiat. Those companies are reevaluating their potential entry into the market there. (I’ll have more about India in the future, which is a very exciting market, with 1.2 billion people.)
I could go on and on… because there is so much information available about weird market movements.
So… what do we do?
We make long term trades on things that we think are right and we make short term trades on things we think are wrong.
Sound confusing? Don’t worry… next week, I’ll show you several ways you can do this.