Facts? We Don’t Need No Stinkin Facts! Why “Chatter” Wins Over Substance in the Markets.

A good friend sent around a piece clearly refuting some current rumor/chatter tempest-in-a-teapot that is gyrating semiconductor stocks (Intel, TSMC, etc…)   It is clear that the facts are totally in opposition to the “chatter.”  And the writers evident frustration makes it clear that the chatter is winning – facts be damned.

Brought back the memories.   Those pesky fact thingies.  Inconveniently in opposition to what “everyone is talking about.”  One of my greatest frustrations as an analyst.

  • Something like this would brew up (driven and fed by the 90% of “analysts” who really just repeat and generate chatter).
  • So you, the dutiful “real analyst”, go assemble some basic, easily available facts that clearly refute the ever-mounting echo-wave of chatter.
  • You present these facts to your peers and PM’s.
  • The response is either a shrug or a smirk with the comment (and implied criticism) “Well, that’s what’s driving the stock.”

After a while, you begin to figure out that the real game is to get in early on the chatter, not the facts. 

Makes sense when you work out the cost-benefit for the professional investing class.

  • Facts are a bit like fossils.   Hard to come by, harder to interpret, and rarely fitting together cleanly.
  • “Chatter” can be generated with nothing more than a fervid imagination and a cooperative chat-room crew.
  • Even better, chatter can give you a one-way bet.  As long as you are confident that you are early in the chatter-production-chain.  You are transformed from a gossip into the “smart money.”
  • This is really what gives the “established” hedge fund community its edge.  It is sort’ve like high school where the popular crowd could set the trend by an effort of sheer will and self-reinforcing behaviors.  If the cool kids are doing it, it must be cool.  In a recursive loop spooling endlessly away from the late-adopter uncool-kids.
  • Those popular guys and girls all grow up to get jobs – some of them at hedge funds. And they realize that generating the same recursive pattern gives them visibility on the direction of a stock.  And that gives you a trading edge.  So you pump up the chatter machine loud enough to overwhelm those pesky facts.  Confident that your fellow chatterers aren’t interested in facts anyway.
  • Even better, this is easy work.  Its what you did naturally in high school.  Bluster and loud assertion are already the go-to skills in the toolkit.  Much easier than doing any of that icky, fact-based “research” like the nerdy kids…  Much safer than trying to get an actual edge on facts.  Blech.  Too much work.  Too much risk.  You just have to keep trading fast enough so that the facts don’t catch up with you.

Sigh.  I found this frustrating mostly because I have never been good at “chatter.”  Its a skill you either pick up in high school or you don’t.  I was/am good with piecing together a factual fossil puzzle.  It never looked very pretty or tidy (unlike “chatter” which bends to account for everything).  But it usually worked out to be a decent approximation of the truth.  And the truth DOES matter in the long run.  Although the “runs” seemed to just get shorter and shorter over the years.

Anyway.  One more week until we (hopefully) get phase 1 of the house construction finished and we can move in.  Of course last night found me up until 2 AM painting baseboards when I wasn’t hugging a washer dryer that was trying to walk its way across the kitchen on its spin cycle.  Just ordered parts to bolt it to the floor.  Sigh.

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