Contiguity vs. Causality
Stock market observers often confuse contiguity with causality.
Daily you see headlines like "The Dow fell 150 points because of rising Oil prices", or "the Nasdaq lost 4% due to escalating Middle east tensions" etc. Human beings love to give a reason to everything. And even when scientifically there is no basis at all for something, they will cling to their reasoning...Astrology is a great example. How can the movement of 9 planets, or whatever the latest number is, affect the lives of each of the 6 billion odd people on this planet? And how on earth (pun?) can they measure it with these astrology charts, etc. for my relatively insignificant life in these 6 billion human lives on this planet?
Yesterday Peter Grandich came out with a $600 price target for Gold in 2006. He said ""A resumption of the U.S. dollar decline is the likely new catalyst for higher prices,". What an illogical statement.
Granted the dollar has been declining in the last 3 years, but can you say conclusively that gold is appreciating because of that? Might as well say that gold is appreciating because of accelerated global warming in the last three years (btw, it is always accelerating...) .
Often times two contiguous events make us think they are related, and worse, that one is causing the other.
So what's a rational investor to do? Think Poker. You play when the odds are in your favor. If you see a dip in gold, buy it. If not, just sit around. You will get your opportunity. ASA will sell off 12-15% from it's recent high and it will give you a chance to get in at better prices. Same goes for GLD. Don't rush in to buy. Doesn't matter where the thing sells off from, I just like a good risk-reward for my investments.
And Gold is not up because of the falling dollar. Remember that.
And I don't know why it is up.
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Sanjay John G.
Daily you see headlines like "The Dow fell 150 points because of rising Oil prices", or "the Nasdaq lost 4% due to escalating Middle east tensions" etc. Human beings love to give a reason to everything. And even when scientifically there is no basis at all for something, they will cling to their reasoning...Astrology is a great example. How can the movement of 9 planets, or whatever the latest number is, affect the lives of each of the 6 billion odd people on this planet? And how on earth (pun?) can they measure it with these astrology charts, etc. for my relatively insignificant life in these 6 billion human lives on this planet?
Yesterday Peter Grandich came out with a $600 price target for Gold in 2006. He said ""A resumption of the U.S. dollar decline is the likely new catalyst for higher prices,". What an illogical statement.
Granted the dollar has been declining in the last 3 years, but can you say conclusively that gold is appreciating because of that? Might as well say that gold is appreciating because of accelerated global warming in the last three years (btw, it is always accelerating...) .
Often times two contiguous events make us think they are related, and worse, that one is causing the other.
So what's a rational investor to do? Think Poker. You play when the odds are in your favor. If you see a dip in gold, buy it. If not, just sit around. You will get your opportunity. ASA will sell off 12-15% from it's recent high and it will give you a chance to get in at better prices. Same goes for GLD. Don't rush in to buy. Doesn't matter where the thing sells off from, I just like a good risk-reward for my investments.
And Gold is not up because of the falling dollar. Remember that.
And I don't know why it is up.
Subscribe now to The Wall Street Journal and get up to 8 weeks FREE
The Prudent Speculator -- Ranked #1 by Hulbert for 10, 15 and 20 year performance...Click Here!
If you subscribe to the Wall Street Journal or the Prudent Speculator using the links above, I get a commission. Thanks in advance,
Sanjay John G.
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