Good stories make us forget the one enduring truth of markets: investors would do well to remember that when reality hits stories, reality wins. Photograph: Justin Lane/EPAOne thing stock markets are extremely good at is storytelling. Every bubble, every shift in market sentiment, comes with a good yarn. You could even characterise a market as a story competition – the best one gets to provide the framework for the winning investment strategy.
The same is true of the growth boom itself. Stories tend to come before the models that back them up. I think market participants all know this to be true. But turn to Nature magazine and you get a hint of how it might be the case across many professions. The journal cites a recent academic paper studying theories about the connection between consciousness and neural activity .
Those investing in the latter have spent the past decade being derided as losers by the former. And those invested in the former have spent it being derided as optimistic fantasists by the latter. As I say: fun, but unfortunate because in the end the difference is less clear cut than it looks. Every year about 37 per cent of the stocks in the MSCI US Growth Index turn out to disappoint on current and forecast revenues. They underperform by an average of 13 per cent. This might not have mattered much in the go-go years when underperforming still meant making money. But when the base case is losing money , and when stock markets hate uncertainty even more than usual, it does matter.
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Source: IrishTimes - 🏆 3. / 98 Read more »