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What's In A Market

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Every day investment professionals across the globe hear some version of the same question:

What’s the market going to do?

We are all guilty for asking, or at least thinking, about this question. There are also extremely insightful and thoughtful answers to that question. Unfortunately, on any given day the answer is almost a 50/50 chance of being “up” or “down”. Equally as unfortunate is that we all know that it is impossible to predict the future to a degree of certainty.

Without qualification, the market should include every security publicly bought or sold throughout the entire world. That makes the market a very, very big place. It also means that the market processes an extraordinary amount of information in a given day.

Each time a trade is made in the market there are two sides that take an equal and opposite position. There is the buyer who thinks they are making a great purchase. Then there is the seller who is happy to rid themselves of the security. Both think they are coming out ahead and this happens over and over, millions of times, every day. While we cannot say which person was “right”, what we can say is that they both believe they got a fair price for the security they willingly bought or sold.

If none of the above sounds like a gigantic leap of faith to you, then congratulations! You believe, to a certain degree, that the market is an efficient determinant of price. That belief allows you to take a substantially different view of the global securities markets than the traditional view. Rather than focusing on what the market is getting wrong through “overvalued” or “undervalued” securities, you can focus on what the market is getting right.

The market can help determine where investors are being fairly compensated for the risk they are taking. By focusing on the aspects of investing that can be controlled, such as behavior, costs, taxes, and allocation, investors can stop worrying about the things they cannot control – which direction the market is going tomorrow.

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