Traders and News

Individual investors especially should read this insider account from Jim Cramer, brought to us by FinancialRx.  Be sure to read the insightful conclusion about how markets interpret news!  Many days represent random trading.  Not every small move has an explanation, but journalists are forced to come up with a reason and someone will always give an interview.  Nearly every market professional shares the sentiments from this Memo to CNBC, also from FinancialRx.

Link: Cramer: What Traders Learned from 9/11.

Jim Cramer’s …

Here are a couple of other examples.  Shortly after I started in the business, a college professor moving to the financial world, the CEO of a major company died unexpectedly.  As it happened, the market perceived the CEO as a drag on performance, so the stock actually rallied on the news.

I was working for a company managing market makers on the floor of the Chicago Board Options Exchange, and I was new to the trader mentality.  As each of our traders came up from the floor, someone would mention the CEO’s death.  The response was roughly as follows:

"That’s bullish…"
"That’s good for the stock…"
"XYZ must be trading higher.  How much?"

…and so forth.  Every trader went quickly to the financial implications, without pausing to consider that someone had died.  Furthermore, they all knew the market attitude and which way the trade should go.  I was struck by how different this was from a campus setting…..

Another great example is from Art Cashin.  I read it in his daily comment many years ago, so my recounting will be imperfect.  Perhaps someone can find a more complete account.  Art talked about his training as a trader which happened to coincide with the Cuban Missile Crisis of 1962.  That’s right, Art has been around for a long time, and we hope he keeps reporting from the NYSE floor for a lot longer.

The Cuban Missile Crisis was the single most dangerous moment for human life on earth, since it was the closest brush with nuclear war.  Art’s group of rookie traders was asked how they would trade in these surroundings.  They all expressed the need for caution and talked about the dangers.  Their instructor explained that they had it all wrong.  If the war started, their positions would be irrelevant!  If it didn’t the news was bullish.

And that is how traders think.