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Higher Volume Does Not Imply Higher Intelligence

Posted by T.W. Hanson - Mar 2nd, 2008 at 20:03

If you follow news coverage of the financial markets, you have undoubtedly been forced to endure the screaming, fist pounding and big hand gestures of the “experts.” Remember that these forms of communication were mostly weeded out by evolution.

If these women and men were sage enough to know where the market is going next, why are they spending their evenings yelling about it in front of TV cameras? I see three possible explanations:

They have positions in the securities that they are talking about and are trying to move the market in personally advantageous directions.
They couldn’t or can no longer make a good enough living from investing. As a result, they are reliant on making money from being a market cheerleader on TV.
They actually have unique insights into the market and feel it is their philanthropic duty to inform the world of their successful trading strategies.

I believe that there are people in all three camps. Some people do provide good thoughts about the market and its likely future course. Others are selfish and simply use the time to talk their own positions.

I have found that one of the best indicators of insight versus ignorant posturing is volume. Beware of the person who’s argument rests on the number of decibels her or his vocal chords can produce.