The Big Picture | How Rational Are Markets?

Crowds consists of irrational, emotional humans. We are slightly-cleverer pants-wearing monkeys. We do very dumb things when pursuing the bananas. We have not evolved to understand capital market risk. We are optimistic by nature, and tend to ignore the negative, until its staring us right in the face and cannot be denied. Then, we (irrationally) panic.

Remember, markets consist of lots of people—some ignorant, and some not-so-ignorant. The present market action can be described as the process of the ignorant and the uninformed becoming less so. Where it can become truly dangerous is when the crowd morphs into an ugly mob. Think Soccer hooligans. That’s when things become ugly—when the monkeys start flinging feces.