The logic of financial markets

2 Nov, 2021 at 13:09 | Posted in Economics | 3 Comments

beautyProfessional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each​ competitor has to pick not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgement are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.

J M Keynes General Theory

Still the best description of the logic of financial markets. Professional money management is at heart a guessing game where investors try to guess what other investors guess about other investors guess about the future …


  1. Indeed! And “If agriculture were to be organized as the stock market, a farmer would sell his farm in the morning when it rained, only to buy it back in the afternoon when the sun came out.”
    – John Maynard Keynes

    • Do today’s farmers, and conglomerates such as Cargill, sell futures when weather is bad, to buy them back when forecasts turn good, profiting more from that spread than the revenue from actual underlying crop sales?

      • Probably; we live in a rentierized economy.

        Within a few years they will stop producing food, and entirely rely on futures.

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