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The Nature of Risk by Mamis,
Information vs. Price

The interplay of information and price affects one's perception of risk.

The instant availability and dissemination of news has altered reaction time and therefore has increased volatility but not necessarily risk.

The extensive degree to which information and opinion are current, whatever is happening, at that instant, is given extraordinary emphasis by the popular media even though the market is an anticipatory mechanism, and even though most news is inconsequential and ephemeral.

The idea that the market, except when news is genuinely unexpected, will have already considered the current news, is not understood by the media.

Information must always be related to the degree by which it is known.

Why then the popularity of the media? Information serves to entertain and to relieve anxiety.

Academics postulate an efficient market, with buyers and sellers instantly adjusting prices to new information. This is wrong because the market is not the sum of what everyone knows, but how each responds to the information.

Belief, emotion, and inefficient distribution of information invalidate the efficient market.

It is belief that causes people to act, not information.

The degree to which information disseminates into the market is hard to judge except by price action itself.

The single best time to buy something is when, given very bad news, the price refuses to go down further. The inverse is also true. The time to sell is when a steady stream of very positive news fails to rally the price.

At the bottom, there is maximum negative information, maximum information risk, but minimum price risk.

At the moment of maximum information risk, price risk is minimal. The more information that becomes available after the bottom, the greater the price risk because the price will already have risen.

The key is to act sensibly, and be capable of taking price risk when we lack the comfort of more information.
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