"The Market Is Irrational"

I had a chat with a reader recently.

He finds it very hard to invest in Singapore Stocks, because the stock prices does not move according to the expected reaction of the news.

Some examples he quoted are:

1. Interest Rate Hike in the coming December - The day the fed gave strong hints that there will be interest rate hike in coming December, all stocks rise the next day. Why? (He expected the stocks to drop).

2. US$ strength will impact on commodities stocks - But the stocks will rise instead at times. Why?

3. Company report good financials but the stock price hardly move. Why?

I gave him a few reasons why the stocks move differently. However, after thinking it through, the only thing I believe is true is "The Market Is Irrational".

This is because the market is make up of 3 different types of "players" - BBs, Traders and Investors.

For BBs, you will never know why they buy or sell a stock unless you know the people inside.

For Traders, they look at momentum and signals in the change in Stock Price. Nothing to do with fundamental analysis. From the facebook groups I am in, I realised there are many traders out there. Sometimes enough to move the stock price significantly, esp for an inactive stock.

For Investors, they look at fundamentals analysis, and sometimes, the news. They may ignore quarterly movement and look for catalyst within the company. They believe they own part of the company and look at the long term view of the business.

Since we have no idea what the BBs intends to do, and they have the most cash to move the market, we can only assume that our view has only a 50% probability chance in being correct.

In addition, if you think more in-depth, news are sometimes propaganda. News are created by people who wants you to believe in a certain way or to influence you to see in a certain way, especially additional comments from the broker houses, banks, etc.

Even financial bloggers like me can be sort of an "influencer".

Another factor is that you have to look at the "popularity" of the particular stock as well. An unknown stock will not move much even if they announced good results. They will need a much bigger push factors to move its stock price (Read here for more views).

Therefore, in short, I believe every person that intends to invest/trade in the market must have their own views. Furthermore, if you are an investor:

1. You have to look more in-depth in the company you intend to invest and
2. Whether you believe in their business.
3. You have to be more micro than marco.
4. You also have to look into the long term of the business.
5. Lastly, if the stock don't move even if there is positive news, do not be despair. Unless you no longer believe in your views, hold on to your positions.

If you are interested in my scorecard, contact me through my blog or message me on my T.U.B Investing Facebook Page. (psst, we are changing our scorecard name because my friend said it was too subjective...) 

Oh and we will have a course soon... contact us for more details if you are interested. Do like our facebook page too...