Signals and Noise (Part 2)

How do you tell what’s really happening?

When the newsreels stop rolling and the microphones go away, you’re often left with the impression that a circus parade just rolled by. Did anything actually change, or did we just see a cavalcade of horses, camels, and elephants roll down Main Street?

When a major news event happens, one thing that does change is our perception of the news. Those perceptions meld together into expectations, and those expectations get built into stock and bond prices. It doesn’t happen perfectly and it doesn’t happen all at once, but market prices tend to reflect the general news stream.

That’s why everyone was so downcast in the winter of 2009. The major banks had taken major losses, and there were rumors that some of them could be nationalized. The market’s gloom wasn’t purely irrational. It reflected the news-flow at the time. By contrast, the sky-high sentiment we saw at the top of the technology bubble mirrored the stories of increased productivity and growing investment spending.

Because feelings tend to feed on themselves in a positive feedback loop, these market booms and busts get overdone. Folks look back at those times and ask themselves, “What were we thinking?”

It’s a fair question. Because when everybody thinks alike, somebody isn’t thinking at all.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2014-06-03T09:23:49+00:00 June 3rd, 2014|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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