Traffic and Personal finances

Most of us who believed that equity investment is the only best way to beat the inflation, are not in very good shape. Of course I know a few who have made millions by going short. Or saved losses by getting out of the market at the right time. However, most of us are not in a very good shape. Today I try to see what makes us take wrong decisions or right decisions at wrong time.

I want to talk about stock market but not about fundamentals nor about technicals on stock market. Imagine you are driving in the crowded street and the car next to you want to overtake you. You of course dont want him to overtake you so you try to come on his/her way. He will try to come as close as you as to make you believe that he may hit you to give you indication that you need to give him a way. At the same time being scared of hitting you. On the other hand you also know that you run a risk of him hitting you but at the same time being just enough cautious you want to block his way.

In Stock market, lets say there are 2 people who have same stock. Both of you want the price of the stock to move up. But at the same time, you want to sell your stocks just before the other guy as he selling before you may take down the price. And you selling will definitely reduce price for him. Now both of you have same interest of stock price to go up. But at the same time he is your competitor when it comes to selling the price.

Now lets talk about information asymmetry. In real market there are hundreds and thousands of traders, investors. Everyone waiting for the right time to buy and right time to sell. Your decisions are based on information. No matter what you follow - fundamental analysis or technical. You want to be ahead of the curve to sell/buy before others take the same decision. at the same time, you dont want to be a loner. After buying a stock, you want others to imitate you to take the price in your favour for you to sell it at the right time. all those who have power of knowledge, will try to use the knowledge to their advantage before disseminating the knowledge to others. and if the chain is huge, by the time the last guy gets the knowledge, first guy would have already started liquidating his stocks.

And this all happens in a very methodical manner. Just like the traffic situation, the big guys want to make money in market - more than others. And at the other end, they need the smaller players to make making money (or at least feel that they are making) because these smaller guys are the ones who lack cutting edge information/knowledge.

Its human to be selfish. But we always try to strike right balance of being social at the same time...