Somebody in New York has a data project that correlates market news articles to future market moves / short-term volatility. Somebody knows the strength of this correlation and they place their bets accordingly. If the correlation is strong enough, then they are creating the news stories. If it is weak, they are ignoring the news.

What is the cause-effect relationship among news, market moves, and actual events?

Some Cause-Effect Possibilities

A.

1. Something happens.
2. News reports it.
3. Market moves.

B.

1. News reports something.
2. Something else happens in reaction.
3. Market moves.

C.

1. Market moves by wild mob.
2. News reports mostly random speculation / is along for the wild ride.
3. Hedge funds win and lose along with the rest of us, just more in a more complex way.

D.

1. The largest market players have incorporated creating news into their big data market-controlling strategy.
2. Big money / big data analysis creates news stories that create profitable market moves.
3. Market reacts with short-term volatility, biggest hedge funds profit.

A is the ostensible assumption. D is the most cynical. I suspect it is pretty close to option C really, but I don’t know. We as outsiders do not know the answer and I suspect the real answer is a combination. As usual, it depends!

On Market “News”

1. Misinformation is as bad as lack of information.
2. The question, “what are reporters saying,” yields infinite random information of unknown value – and therefore zero value.
3. Speculation is free. The only incentive for someone selling news is to say something alarming and attention-grabbing.
4. The question, “where are people actually putting their money,” yields better information. However, the average outsider investor can only know where the money really went after it happens.

Where Should I Put My Money?

Short-term, only the most inside people know “real” value of individual investments. No single individual knows the “real” value of every individual stock, hence the “market.”

Long-term, there is a strong incentive by all major parties for the market to go up. This applies to value creation by companies as well as the more cynical policy setting by governments. Therefore buy-and-hold works. Ride the bandwagon!

If you can, put your money right in front of you where it can enhance your own value creation / attention / effort. In other words, put your money where you are the “insider.” If you can, be the insider.

But I’m Curious What’s Happening

Okay, then do not ask the question, “What is the news saying about the market.”

Instead start with the question, “Where has the market gone?” This at least starts you off by knowing where people actually have placed their collective substantive opinion.