Kelly C. Ruggles Home
Kelly C. Ruggles Book Chapters
Kelly C. Ruggles Introduction
Kelly C. Ruggles Financial Planning
Kelly C. Ruggles Retirement Plans & IRAs
Kelly C. Ruggles Insurance and Asset Protection
Kelly C. Ruggles Medigap
Kelly C. Ruggles Long-Term Care
Kelly C. Ruggles Estate Planning
Kelly C. Ruggles Investing
Kelly C. Ruggles Taxes Information
Kelly C. Ruggles Planning
Kelly C. Ruggles Newsletters
Kelly C. Ruggles Speaking
Kelly Ruggles Resources
Kelly Ruggles Contact Us
The web site of Kelly C. Ruggles. Kelly C. Ruggles, President of American Reliance Group, Inc., is a well known educator and fee-based financial planner. |
Kelly Ruggles is the author of "The Financial Playbook" for Retirement.
Kelly C. Ruggles, Financial Planner and Educator

Suggested Reading by Kelly C. Ruggles        Back to Article Main Page

February, 2010
Stock Markets and Clouds: The Patterns are Just as Meaningless

If someone looked at the U.S. stock market on Jan. 19th and 20th, they might conclude that prices were in a downward spiral. Over two days the Dow Jones Industrial Average plummeted by 336 points.

But if they looked from March 9, 2009 through Jan. 20, 2010, they might conclude the opposite: the market was in an upturn as the Dow soared by 3,843 points. Again, the same observer looking at the Dow between October 2007 and January 2010 would see a pattern that indicated a downturn, with the Dow falling 3,774 points.

What's going on here?

Patterns everywhere

All of these observations are true as far as they go. So which pattern is right-up or down?

Neither: in fact, there is no pattern. This is a typical case of our human tendency to see patterns where they do not exist. In fact, the movements essentially are random. As one set of researchers noted in 1974: "People have a very poor conception of randomness; they do not recognize it when they see it and they cannot produce it when they try." The stock market's movements between those dates did not indicate a pattern tied to causes but rather was random movement, just like fair tosses of a quarter. Even though, on average, coin tosses should split about evenly between heads and tails, given enough tosses there will be all types of seemingly meaningless patterns that appear to be determined. In a series of one million tosses, for instance, several strings of 50 straight tails would not violate the rules of randomness.

A random market

Burton Malkiel, a Princeton professor and author of "A Random Walk Down Wall Street," argues that enough research has shown that the performance of stocks is so random that unless you have insider information you can-not hope to profit by trying to exploit changing prices.

Numerous studies show that investment experts-whether highly paid Wall Street analysts or famous newsletter writers- fail to beat the market on average. Then why do some of them individually beat the market, and, more impressively, beat it year after year?
It is a phenomenon similar to the coin tosses: given enough people involved, one or more are likely to beat the market merely by chance.

 


©OSB Financial Services, INC. rights reserves. Information has been obtained form sources believed to be reliable, but its accuracy and completeness and the options based thereon, are not guaranteed. Always consult your a financial adviser and prospectus before making an investment

©2009, Kelly Ruggles.com Website | Sitemap | Disclosure
Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles is the author of "The Financial Playbook" for Retirement

Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.