It’s easy to forget that markets are nothing more than a mechanism to transmit value and value is nothing more than perception. Hence markets are nothing more than perception. Likewise, it is easy to forget that in all of our fundamental, technical and economic analyses, we are trying to decipher and predict both current and future perception.
Perception is a human entity. It is context and belief driven and as such both ephemeral and illusive. It’s why looking at numbers feels so much safer.
But yet if the markets are perception only then what does that make the numbers? How about a language or a piece of art? In a language – take English – you have multiple versions, American, British and Asian at a minimum. The meaning of a sentence can only be known if you know which one you are speaking and in what context you are speaking it. Such is the same with say Dow 12000 now. It means something totally different that it did a month ago and something totally different if you are long or short biased.
The point really however is that all humans are good at predicting all other humans (males predicting females aside). We are naturally built to do it and if we consciously work at it, we will gain a much more robust context in which to make our market – or other uncertainty – decisions. Take today – anyone who does a little reading can make what I predict will turn out to be an excellent prediction on the behavior of the current key market influencers – the central bankers and country leaders of Europe.
Make yourself a social map of their motivations and ask yourself, what kind of events do you think will happen. Doing so will give you a better peek into the future – as long as you remember one thing, their timeframe might not be yours.