*Yesterday the Dow plunged 290 as investors worry. (Associated Press)
*Dow's biggest decline in 7 weeks. (CNN Money)
Some of the previous headlines before yesterday's drop were, the "Dow Climbs 20%", "Experts see signs of recovery", "Glimmers of Hope", etc. etc. The financial media is manic for the same reason people are manic. People don't think in terms of long run averages. They see the variance, the short term movements and cry or celebrate accordingly. Practically all people can't see beyond today's results and focus on the yearly or decade results. Benjamin Graham, Warren Buffett's crush, associated this behavior with "Mr. Market".
Mr. Market is a bit of an older gentlemen's term. The manic behavior reminds me more of a wannabe Blackjack Card Counter. The book Bringing Down the House and the movie 21 has brought in a younger generation of gamblers allured by the adventure and fantasies of quick money. They read the book and learn how to count (the counting is the easy part). One of two things can happen:
1. They go out to the tables and end up losing money, even though they had an edge. They get mad and blame the system. They blame everything but themselves and quit.
2. They get real lucky and win some money. They're thinking, "This is easy. I'm going to be quitting my job soon, so I can gamble full time." They go back to the casino the next day, next week, or the next month and then get hit with a normal loss and then quit.
That's the sad fate of most Blackjack Card Counters. They don't realize that to make about $10 an hour card counting, they could end up anywhere being -$390 or +$410. The amount of luck possible is 'confined' within a range of possibilities.
These wannabe card counters are almost always the same type of people that work in the financial services industry. They're drawn to the allure of of adventure, quick money, and lavish lifestyles. They panic when the market drops and celebrate when the market rallies. In the end, these people can never beat the market averages.
These guys just never learn that most movement in the market is random, even if they had an edge. They need to chill out. If they planned well, these movements should have no major effect on their investment decisions.
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