Sunday, July 27, 2008

Technical vs Value Economics?


Everybody oughtta know, but doesn't, that two things create the trading value of a stock. The value of the assets of the company issuing the stock, and the desire or lack of it on the part of investors to own said stock, the technical function of the price. That's the one giving us charts that show moving cost averages, shoulder formations, spikes, dips and the generally tortuous path carved by shares in a company whose underlying assets don't change with anywhere near the speed of its capitalization. If you've read this far, congratulations.

Now imagine trying to predict a stock price, or even understand it, without factoring in its popularity. In other words, being unaware of market fluctuations. Would you feel comfortable betting your 401K that way?

Overhead on the web today---

After tutoring economics at a college for over a year, I have to agree that most students can not connect what they learn to the real world. This is caused in part by the professors. Many of the professors are excellent statisticians and fully understand numbers and their relations, but when it comes to psychology they have no clue.

Economics is primarily a psychological problem; you have to understand people and their motives BEFORE you can accurately describe them with numbers. In today’s academia there is a huge disconnect, we are trying to describe in numbers behavior we don’t understand.

Until the psychological part of the “dismal science” is put back in, we will continue to fail our students and the future.

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