This recent spate of financial problems around the world got me interested in finance and investing. I have been doing a fair bit of poking around on the internet to try to understand what exactly is going on, and even more importantly to understand what people actually know about the whole situation. The only thing I can safely conclude is that nobody knows anything of any use, even the professionals (especially the professionals?). When I watch interviews with CEOs of big investment firms who talk about how Greece and Japan are going to default on their debts in very short order and then notice that people are still buying up Greek and Japanese debt it becomes clear that there is no consensus on what is right and what is wrong.
Of course this is how the market is supposed to work. The value of something ends up being what people think it is and since there are plenty of informed, clever people who think that Greece will never be allowed to default and others who think that it will default for sure we end up with high yield Greek bonds that people do buy. I saw an interview with Warren Buffet who firmly believes that the US is headed out of recession and into better economic times but the bbc quotes bankers as believing that we are headed into another year of recession based on market behaviour. What is the average person to do in such a situation? At the moment the answer seems to be "buy gold with all your money in mid July" but nobody has a clue about where things are going. To be sure, plenty of them have strong opinions but since people all disagree and no one has a perfect track record or working model I don't think believing any of them is reasonable.
They have so many of us fooled. We watch the evening news and economists say "when the government does X, Y will happen" and then when the government does X, Z happens instead. Or the government does X slightly weirdly and C happens instead. These pundits and advisers go to great lengths to establish that they understand the markets and can predict what will happen in the future and despite irrefutable proof that their claims are bogus we go on listening. I guess it can be laid at the feet of the human desire to see patterns. We want to think that the market is something we can understand, something we can control. We assume that if someone has an impressive degree, an expensive suit and a high paying job that they must be better at predicting the future of the economy than darts thrown at a dartboard. It turns out though that they aren't. The best returns on investments are those run by a simple 'buy a little of everything' formula (index funds) and nobody beats the market.
When I was young I played a game called Stock Ticker that simulated a simple stock market. Each turn you would roll the dice to figure out what stocks were going to move and how. I assumed that real stock market players would know what was going to go up and what was not - just buying stocks and hoping wasn't how real people did it. Turns out buying stocks at random and then consulting the dice to see if you are rich or not is actually an awful lot like the real stock market. The people involved have all kinds of information and training and yet they still struggle to beat 'roll dem dice' investing.