There is no such thing as “Priced in”

“Priced in” is to investors as “God's plan” is to religious people. It's the perfect explanation for every market movement.

And in a world where stock markets are made up of people with strong emotional control and whom investments are the result of a careful and thorough due diligence, that expression might even make sense. But that's not our world is it?

In fact, the reasoning process of the average investor is not “I valued AMD at $70 per share but with this new information available, the intrinsic value lowers to $60”, instead, it's something more like “Bad news for AMD, must sell before it's too late” or “Bad news for AMD, what do you think guys, should I sell?”.

Stock prices go where the relationship between bid and ask makes them go, there is no logic adjustment based on the impact new information is going to have. When the stock market moves downward following bad news, chances are (100%, to be precise) it will continue to do so for as long as the amount of investors who wants to close their positions at all costs will outweight all the others. Once the system finds its balance, the downtrend ends.

Everything is priced in they say, until it's not. And at that point they start panicking.


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