Beware of crowds and commentators! - Views on News from Equitymaster

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Beware of crowds and commentators!

Dec 15, 2010

We are a strange country. We play only two games. One is, of course, cricket. The other one is speculating in stock markets. There is one very important aspect that is common between the two games: the crowds and the commentators.

Try and think of an India-Pakistan one-day match without these two elements. Imagine an empty stadium with just the two teams playing. No cheering, no booing, no yelling, no clapping. And no "wise guys" yakking away endlessly into the microphone. How about it? Would that be a cricket match at all?

It would be an absolute drab. Quiet. Empty. Emotionless. Endlessly boring.

Enough of cricket. Now switch to stock markets. Do you see the similarity already? Here, the companies are the 'players' while the 'crowd' comprises investors and speculators. The crowds and the commentators are quite an interspersed lot. It is often difficult to differentiate between the two. And unlike cricket where there just a couple of commentators, stock markets bear hundreds of them.

A cricket match may last a day or at most five days. A 'going concern' company has a much longer life. But the amount of commentary and the so-called "expert advice" that pours in minute after minute is humungous. Loads and loads of information, news and views are bombarded at you 24x7. News anchors, reporters, analysts, "market gurus", economists- all take turns to pound at you. It makes you feel as if the world is changing so quickly and dynamically that if you don't react then you might just lose out. In such a scenario, the easiest option is to impulsively react. Because you would have to be a supercomputer to really be able to make any sense of the plethora of information.

Let's answer some simple questions. Does a company's fate change minute after minute? Does its sale and production rise and fall every single day the way its stock price does? Absolutely not! Would you judge the fate of a cricket match looking at a few balls?

If you quietly step back from all this ruckus and chaos, you might begin to understand what's going on. It is quite natural to be drawn to the loudest and the most prominent stimulus. The yells and noises that the crowds and the commentators make are quite compelling. But should you listen to them? We hope you know our answer!

The companies are the 'real' players. They are the ones you should be looking at. What the company does, rather than what the crowds or the commentators do or say, will matter in the long run. Simple. So mute your television the next time you watch a cricket match.


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3 Responses to "Beware of crowds and commentators!"

Jignesh khadela

Dec 19, 2010

Quiet true!
It is really important to be selective about the information when there is plethora of it available just click away to make real time decisions.

Like 

Subinoy Choudhury

Dec 18, 2010

Sir,

Well explained! Every morning we open business channels and we find new face appearing to talk about probable stock price and these channels just mulitply the news as if these are the most trusted views about companies.

Your this article is very timely and helps us to be more cautious.

Like 

ss Varadan

Dec 15, 2010

Well said!

So, what we need is a TV Channel/ single Web-site where each Player(EACH Company) talks about the review of its Business Plans!!

Like 
  
Equitymaster requests your view! Post a comment on "Beware of crowds and commentators!". Click here!

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