Surowiecki on the Correction

In the New Yorker, James Surowiecki looks at the stock market’s recent unpleasantness. He agrees that faulting China is a weak excuse. But he raises an interesting point in that investors aren’t very good at assessing the impact of new information:

In one famous experiment by the psychologist Paul Andreassen, investors who selected a portfolio of stocks and then saw nothing but the stocks’ changing prices managed their portfolios significantly better than investors who were also given a stream of news about the companies they’d invested in. The reason, Andreassen suggested, was that the media’s tendency to overplay stories led investors to place too much weight on news that turned out to be of only transient importance.

Sometimes asking why the market falls is a fruitless task. It’s not a comforting thought, but the stock market can fall suddenly for little or no reason.

Posted by on March 11th, 2007 at 7:17 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.