Since I was a child, I have always been interested in the stock market.
Now, I’ve played a bit here and there, and made some money here and there, but I’m certainly not a Wall Street guru. And I don’t have enough to buy one of those HFT machines that everyone talks about, and it might even be outlawed soon.
Still, markets in general have always fascinated me.
There is a book called “The Wisdom of Crowds” by Surowkiecki, where he describes some pretty strange things. Things that only the “crowd” can know.
For example, in the late 1980s the space shuttle exploded. Live on TV. A gruesome event. There were three possible reasons. And for every possible reason, there was a company that made that particular component.
Let’s call them Company A, Company B, and Company C.
In thirty minutes, all three companies literally sank into the stock market. Then before the end of the day, Company A and Company B had returned to where they were and then the markets opened.
Company C, however, never recovered.
Six months later, NASA scientists determined that Company C was responsible for the explosion and the deaths of those people.
However, the markets, the great mass of merchants, probably none of whom had ANY experience in building space shuttles, knew about it.
What took NASA six months to find out, the crowd knew in a day.
One of my all-time favorite books on the stock market is called “Reminiscences of a Stock Market Trader” by Lefevre. Lefevre is a pseudonym for Jesse Livermore, one of the most famous market traders of all time.
I like that name, “trader”, rather than “investor” or even “speculator”.
Anyway, one of his famous quotes is:
“Don’t fight the tape.”
The tape you’re referring to is the old ticker tape with stock prices on it.
Which means that if the stock market is going up, you should. If the stock market is going down, you should be with it.
You see, in his career, Livermore frequently tried to “fight the tape,” which means he thought he could “think better than” the markets. But every time it burned.
When it comes to human behavior, we have our own internally programmed tape. The instincts that have been in our heads and in our DNA for thousands of years.
You can accept it or you can try to fight the tape.
But to be an efficient operator in your own reality, “don’t fight the tape” is good advice.
