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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (74558)11/28/2006 2:55:30 PM
From: Wyätt Gwyön  Read Replies (2) of 110194
 
his is because markets are primarily moved by psychology - fundamentals will forever play second fiddle to it.

i disagree--Heinz is being too reductionist. yes, short-term market moves are mainly noise that cannot be explained by fundamentals--that is a well-known truism and hardly the undiscovered truth Heinz makes it out to be. e.g., Shiller devoted an entire chapter of his bubble book to debunking the relationship between headline "truths" and market reactions, in particular the "fundamentals" which led to the 1987 cr*sh.

but it is oversimplifying to say that fundamentals are irrelevant or unimportant or "second fiddle" or however you want to put it. that is like saying gravity is unimportant to the motion of a feather tossed in the air from a high place. Grantham presented this more nuanced perspective as an analogy: toss a bag of feathers from a high building. you don't know where or when they will land, because of noise (wind, thermals, rain, etc.), but you do know they will land eventually, due to gravity.

gravity is like fundamentals--it is inexorable and over time the weight of gravity trumps all the short-term noise and causes objects to land. likewise, the inexorable pressure of fundamentals is eventually reflected in the value of securities. another (more famous) analogy along that line is that the market is a voting machine in the short term and a weighing machine in the long term.
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