On the “Brexit” news and the stock
The thing about bad news is that it’s only bad because
people expect everyone else to think its bad, so they sell in
anticipation of that, which makes it true.
The Brexit-referendum news didn’t “destroy 3 trillion
dollars” (as I heard some shallow talk show hosts parrot on
AM radio this morning). Speculators sold shares because they
predicted that other speculators would sell shares, which drove
down share prices, just as they had predicted.
The real valuations of the companies that those are shares of did
not change. Speculators are typically willing to pay more for a
share of stock than its real valuation because they predict that
some other speculator will be willing to pay slightly more. The
only thing that happened after the Brexit news is that the extra
margin that speculators were willing to pay for shares of
companies temporarily shrank. You can be sure that if any stock
prices fell sufficiently to reach their real valuation, the
speculators would gobble them up, because they know that after
the news blows over, the trading prices of those stocks will rise
again to much higher than the real valuation. The speculators
temporarily destroyed their own trillions by selling in
anticipation of other speculators selling, but they will recreate
those trillions by buying in anticipation of other speculators
buying after the news blows over.
Those “trillions” were not actually lost. Those
trillions were never really there to begin with. Those trillions
represent only the extra amount that speculators are willing to
pay for shares of companies in excess of the real valuation for
the purpose of buying from and selling to other speculators.
Those are virtual trillions made entirely of, and supported only
by, the hunches of speculators.
Speculation is a game of anticipating the
Warren Buffet doesn’t participate in the speculation game.
He’s a value investor. He figures out what a share of a
company should be worth before he even looks at the most recent
Most traders are not value investors. Most traders are price
speculators. They buy or sell shares of a stock depending if they
think other speculators will be willing to pay a higher or lower
price in the future. Speculating is a game of anticipating the
movements of the flock and trying to make those moves earlier
than most of the rest of the flock. The flock moves quickly but
not instantaneously. Half of the birds will always be faster than
the other half of the birds.
The trick to making money as a speculator is being in the faster
half of the flock. It’s that simple.
Wish me luck.
Now that I think I understand speculation, I will try to
anticipate the flock earlier in the future and trim off my own
little slice of those virtual trillions, while everyone else is
trying to get their slice off of me.