Some of the questions which I am asked about the equity markets are downright stupid, but here is an attempt to give some sensible answers:
- Why did the stock market go up (or down) by 700 points today?
Correct answer: Stupid woman, nobody knows the answer to this question, will you stop asking this stupid question everyday.
Best answer: Typically, such movements is just the volatility that’s always present in the all (including stock) markets. We have been told that we should want everything explained, most of the market short-term moves are simply random. The managing director selling 2000 shares to make a down payment for a house, the manage selling 200 shares to paint his house, and the promoter placing 2,000,000 shares with an FII all are random events happening on the same day. Just random – and all of them will have an impact on the price. This has NOTHING to do with the fundamentals of the company. Simple random variation. However the media scrambles to find news items to support the market movement of the day so that the media people (and the viewer) can THINK that they can make sense of it. The person who comes in the media cannot rubbish it (then he will not be called again). If he has bought his presence, then it is a waste of money too. So the media is doing its job of asking inane questions. People who have to look good in the media are giving some smart sounding wrong answers. You should remember what Taleb says “Sensible Soundbytes” is an oxymoron. Media headlines can be dangerous to your financial health.
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