The Hoax of Modern Finance: Part 2- Indicators, Terminology and Noise
The modern era of finance has become an incredibly complex field that even has its own lexicon. This can be overwhelming and in the same light, used as a tool to obfuscate the truth. It’s become nearly impossible for novice investors and average people to know what exactly is going on in the markets and navigate them successfully. In part two of our series on the hoax of modern finance we’ll be looking at indicators, the terminology and the noise that goes with it.
Indicators are essentially statistical measurements used to measure a certain economic situation, trend, etc. What’s important to note and bear in mind with indicators, is that they often use lagging information. By this we mean data that’s often already a few periods old, and usually not relevant to the current situation. Other indicators, are more speculative such as price to earnings (P/E ratios), price to sales (P/S ratios), price to book (P/B ratios) etc.
Along with indicators, comes the jargon of modern finance. Terms like longs and shorts, buy and hold, stop loss, trailing stop and so on. It’s important to understand and contextualise these terms before taking any action. You should also be aware of what each one is precisely and what the potential outcome for each action is likely to be.
Lastly, and most importantly, modern finance is full of noise. Noise exists in the form of market rumours, news, information, misinformation and advice from other market participants. It’s extremely difficult to know what is true and what is false, and it can be dangerous to take action on noise. Noise often carries more emotional weight than factual backing and this can be disastrous in markets.
In conclusion, understanding modern finance means understanding indicators, terminology and noise. All of these elements are important but can be overwhelming for novice investors and average people. To combat this, it’s recommended to seek out financial advisors to help with making prudent decisions. Furthermore, read up as much as you can about various topics in the financial world and be sure to double check and fact check anything important. By doing so, you can ensure your financial decisions are sound and well-informed ones.