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View Diary: Market fundamentalism: so silly, yet so deadly. (12 comments)

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  •  One word with two very different meanings (2+ / 0-)
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    Ask 4 Questions, Deep Texan

    In the economic realm, the word "fundamentalist" is very ambiguous.

    On the one hand is "market fundamentalism," which is what the diarist is writing about. Here's a short definition from Wikipedia:

    Market fundamentalism (also known as free market fundamentalism) is an exaggerated faith in the ability of unfettered laissez-faire or free market economic views or policies to solve economic and social problems. The term is used pejoratively.

    And, yes, it's a right-wing deeply-flawed philosophy, in my opinion.

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    But there's another one:

    I don't own any stocks and I don't really follow the stock market, but I know the concept of fundamental analysis. Again, here's a Wikipedia definition:

    Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets.

    It's different from technical analysis:

    When the objective of the analysis is to determine what stock to buy and at what price, there are two basic methodologies:

    1. Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.
    1. Technical analysis maintains that all information is reflected already in the stock price. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical analysis does not care what the 'value' of a stock is. Their price predictions are only extrapolations from historical price patterns.

    For example, someone like Warren Buffett looks at the fundamentals. He buys a stock and holds on to it. Someone who does day trading is looking at graphs and doing technical analysis, with lots of numbers. (And 'quants' are the math and computer geeks who figure out how to buy and sell securities in tenths of seconds.)

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    My point is that if you see a stock broker on TV and he says he's a "fundamentalist," he probably means he's a "fundamental analyst" (a rather good thing) rather than a "market fundamentalist" (an evil Republican thing). Or he could be both.

    I'm just saying the one word has two meanings. (Plus, the religious meaning, but that's mostly irrelevant if you're talking about economics.)

    "Where it is a duty to worship the sun it is pretty sure to be a crime to examine the laws of heat." - John, Viscount Morley

    by Dbug on Tue Sep 21, 2010 at 08:49:26 AM PDT

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