What drives markets is the age old mystic theory that keeps analyst, traders and evangelist engaged. Scientist/analyst always want to prove and validate what they believe to be true. Some call them fundamentalist. They spend years compiling data and facts to validate and prove their theories about what drives the markets. From their view there is not other way to make money and explain the markets. Traders look at charts and much like analyst they spend their time compiling what some call Ouija board data. They can predict, according to their claims, which way the market is going by interpreting the charts with a high degree of probability. True or not… they believe it as much as the analyst/scientist, and for them, it is the only way to manage money in the markets. The evangelist have a message to preach and they will tell you convincingly it is true and will talk you through the process, sell you a book, sell you an online course or any other type resource you need to follow their way of doing things. They come in all types of sizes, time frames and products, and they will help you understand why the market is doing what it is doing. The really good ones can even predict the future, at least they believe they can as they claim to be prophets. In short, what they all want to do is explain, define and predict the markets based on theory. Why? It is human nature to explain what can’t be explained. It is as simple as that. It is like the old joke, “what do you do with an elephant with three balls? Walk him and pitch to the giraffe:)” The answer is all in what you think.
As long as human emotions are involved in the process of the markets there will always be the unexplained. There are three driving influences on the markets… There is emotions, there is news and there is fundamental data. Putting those in perspective it helps explain why the different theories above could all work during certain periods based on the current events. Nothing more irrational than human emotion derived from the unknown and motivated by fear and greed. Nothing more and nothing less. It is unpredictable person to person and thus the influence on the markets is erratic and unpredictable. News can involve emotions which leads to speculation which prompts the fear and greed that leads to worry and hope. The news is subject to interpretation. Sometimes it is clear, concise and true. Other times it is a jumbled mess of speculation and conjecture. Fundamentals like news is subject to interpretation. Add in some extrapolation and manipulation and you can make the data say whatever you want… after all four out of five dentist chose Crest Toothpaste. You just have to compile and report and the data in such a way the report is true. If they all have influence on the markets day-to-day is there any wonder why the markets are irrational, erratic and neurotic on any give day?
This gives us the dubious task of determining what we should do relative to the markets and what strategy is best to approach investing with? Looking at those who came before us who were successful at the process of managing money does leave clues. The challenge is which one is worthy of the time and effort to learn. There in lies the problem because each of us is as different as the strategies put forth to manage your money. My belief is the solution lies within you. It is important that you find what works best for you. Even if that is a CD at the bank. The first rule of deciding for me? It has to be insanely simple. That means we must understand exactly what we are putting our money into and the risk, the time frame, the time involvement, the volatility and the amount of money needed to invest. Pick one thing and learn how the product works and what it delivers relative to your purpose in light of various market conditions. Keep your approach simple, focused and implementable. Test, practice, test, practice until you understand and execute it perfectly. Doesn’t mean it will always make money, it just means your disciplined habits will keep your from making mistakes that will cost you all of your money.
Managing money is not about managing the markets, it is about managing you in light of your goals or purpose for investing. The markets will do what they are going to do over any given period of time. The challenge comes in managing our emotions and habits towards the market as much as managing our strategy about the market. Regardless of if you use technical, fundamental, quantitative or a Ouija board approach to managing your money, you must account for yourself in the process. The hardest lesson I had to learn over the last thirty plus years, I can only manage myself, not the markets.