Investors like to believe they understand the relationship between the stock market and the economy. It gives them a chance to sound smart and justify their subscriptions to the Wall Street Journal. The story is “obvious”. If the economy is doing well, companies make more money, and stocks go up. If the economy is struggling, […]

Spring cleaning is one of those phrases people use when they want to make something dull sound virtuous (or is spring cleaning just something done on farms and in TV shows?). In domestic terms it might mean swapping over a wardrobe or mopping out the hallway. But there is a market related point inside the […]

We wrote recently about the danger of conditional truths. Investors have a habit of compressing complicated relationships into absolutes. “Oil up, stocks down” is one of the more persistent ones. It sounds right and makes sense, at least superficially. Chemicals from oil turn up in plastics, cosmetics, medicines, fertilizers and a lot of other unexpected […]

In theory, price levels should not matter. Returns (hence profits) depend on changes, not absolutes. A stock at $50 that goes to $55 has done the same thing as a stock at $100 that goes to $110. Modern finance is built on this invariance. Prices are scaled quantities. Levels are irrelevant. And yet, in practice, […]

Opening Day is this week, which means baseball fans will spend the next six months arguing over stats that Bill James already told us not to trust. Investors do the same thing—just with money at stake. If Bill James had gone into finance instead of baseball, he would have become the patron saint of anti-hubris. […]