4 ms·

Don’t Blink: The Hazards of Confidence (2011)

42 points by tim_sw 11y ago

fauigerzigerk 11y ago
I think the idea that two people taking the opposite sides of a stock trade are directly contradicting each other is incorrect because it ignores risk, volatility and time horizon.
jimhefferon 11y ago
He is always a thought-provoking and insightful author; thanks for the link. I am often puzzled by an apparent (to me, anyway) contradiction: (1) individual stock-traders are (mostly always) dice-throwers, versus (2) the market figures out the correct price of the stock. Isn't the market made up of individual traders? Doesn't (2) require that, across the entire market, the year-to-year success rate not be zero?
- plonh 11y ago
  There is no correct price. There is just consensus. The notion of price discovery is just about getting investors to share their beliefs by making offers, getting to an inherently real answer. On average, the market grows in value because companies eventually pay dividends from profitable endeavors.
  - jimhefferon 11y ago
    > There is no correct price. There is just consensus. And yet Warren Buffet is fantastically wealthy. The average investment advisor, this article states, is not.
- x5n1 11y ago
  The market is a rigged place where individual traders matter a lot less than the movers and shakers which take home most of the winnings at the cost of individuals.
- anon4 11y ago
  The individual traders' guesses are influenced by the market and by their prior knowledge on how similar stocks of similar companies performed. So the final average does depend on the values of other stocks in some ineffable fashion. Whether or not that's the "correct" price of the stock might be largely a question of whether or not you accept trader intuition as axiomatic or not.
draw_down 11y ago
The problem with this topic is that you start to see it everywhere, in everyone's behavior and thinking. It will drive you batty, and you can't do anything about it. I spent a lot of time learning about all the different ways we humans fool ourselves. I'm not sure it was time well spent.
klunger 11y ago
This topic is covered in significantly more depth in his book Thinking Fast and Slow. I highly recommend taking the time to read it, if this article piqued your interest.

42 points by tim_sw 11y ago

I think the idea that two people taking the opposite sides of a stock trade are directly contradicting each other is incorrect because it ignores risk, volatility and time horizon.

jimhefferon 11y ago

He is always a thought-provoking and insightful author; thanks for the link. I am often puzzled by an apparent (to me, anyway) contradiction: (1) individual stock-traders are (mostly always) dice-throwers, versus (2) the market figures out the correct price of the stock. Isn't the market made up of individual traders? Doesn't (2) require that, across the entire market, the year-to-year success rate not be zero?

plonh 11y ago
There is no correct price. There is just consensus. The notion of price discovery is just about getting investors to share their beliefs by making offers, getting to an inherently real answer. On average, the market grows in value because companies eventually pay dividends from profitable endeavors.
- jimhefferon 11y ago
  > There is no correct price. There is just consensus. And yet Warren Buffet is fantastically wealthy. The average investment advisor, this article states, is not.
x5n1 11y ago
The market is a rigged place where individual traders matter a lot less than the movers and shakers which take home most of the winnings at the cost of individuals.
anon4 11y ago
The individual traders' guesses are influenced by the market and by their prior knowledge on how similar stocks of similar companies performed. So the final average does depend on the values of other stocks in some ineffable fashion. Whether or not that's the "correct" price of the stock might be largely a question of whether or not you accept trader intuition as axiomatic or not.

draw_down 11y ago

The problem with this topic is that you start to see it everywhere, in everyone's behavior and thinking. It will drive you batty, and you can't do anything about it. I spent a lot of time learning about all the different ways we humans fool ourselves. I'm not sure it was time well spent.

klunger 11y ago

This topic is covered in significantly more depth in his book Thinking Fast and Slow. I highly recommend taking the time to read it, if this article piqued your interest.