You make investment decisions in the belief the ‘economic instruments’ are giving you the right signals, only to find out later you were actually flying blind.
Financial markets have all but decoupled from reality. The manipulation of interest rates has completely distorted prices. If prices don't communicate useful information anymore, markets aren't markets. They're just vehicles for transferring money from one party to another.
Did you just hear that crack? That's the sound of the stock market buckling under the pressure of a Greek bailout, a China hard landing, and a lack of faith in central banks. Both the Dow Jones Industrials and the S&P 500 were down by over 1.5% overnight.
Financial markets and institutions are mighty unstable no matter where you look these days. Europe, America, China, Australia. Where are you supposed to go to invest your money?
But first, it may help to take a minute to explain what a special situation is. It's actually an old concept. The best definition may be that of the great Ben Graham - famed value investor and mentor to Warren Buffett.
Intrinsic value!? Is there really such a thing with stocks? Isn't value solely determined through exchange, between the price at which two parties agree to conduct a transaction? To help us with these questions-and more-we turn to Greg Canavan...
Investor emotion accounts for these fluctuations. Many years ago, Benjamin Graham characterised this emotion as 'Mr Market'. Sometimes Mr Market was very happy and positive about the future and was willing to pay handsomely to buy shares. At other times, Mr Market thought the sky was falling in and wanted to give those same shares away at bargain prices.