Now that I have settled in following my trip to Sydney I have had a chance to unpack and to clear out my junk mail folder. My junk mail folder is used to collect any manner of financial dross and it is a veritable treasure trove of hyperbole, breathless overstatement with a slight dash of demented conspiracy theory thrown in for good measure. It contains emails with wonderful titles such as are you prepared for golds next 1000% gain. This was quickly followed by an email following week which asked are you prepared for golds 1000% fall (nobody said numeracy was their strong point). The issue here is one of language and its impact upon the trader, particularity when vaguely technical sounding terms such as oversold as thrown into the mix as a means of either attracting attention or simply generating emotional energy.
For example, one of the emails I just binned was related to a series of stocks that were considered to be oversold. The notion of being oversold implies a bargain; something has been discovered and you are being let in on the discovery. The stocks mentioned are immaterial as is how the notion of being oversold is defined. What is important is the phrasing of the headline which is designed to affect reasoning and subsequent behaviour. Implicit within this is the assumption that readers will not investigate what the expression oversold means and whether it has any validity in their investment decision.
This is another example of how narrative affects the way people process information – a good story beats data every time. We are designed for this to happen, our evolution has primed us for narrative as this was the major mechanism by which information was transmitted. This is why we are tricked by a goods story – it subverts the need or desire to look at the actual facts and analysts within the financial industry depend upon this for their jobs.