Autistics, Neurotypicals and Finantial Markets – my theory

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Imagine that an autistic person is making a decision about an investment (buying shares, make a mortgage loan, anything) – he will study the numbers (the “fundamentals”), and he will decide if the investment is good or bad using the numbers.

For example, an autistic bank analyst deciding if he should give a loan to someone to buy an house: he will look to the price of the house and the historical of the prices of this kind of houses compared with GDP. If he sees that the ratio price houses / GDP is higher that it used to be, he will came to conclusion that house are over-priced, that the prices will have a slump and he will refuses the loan.

Now, an NT analyst – unlike autistics, he have the famous “theory of mind” and he will not only look to the numbers but he will also “think about other people think” – he will think “at the paper, these houses seems much expensive; but, if the houses were realy expensive, the other people already should had noticed that, selling the houses and making the price lower; then, the current price of the houses are the CORRECT price, because, if it was not the correct price, other people will already had noticed that” (the so-called “efficient-market hypothesis”), and he will make the loan.

Then, a financial market managed by NTs will be prone to intense speculation and cyclical “booms-and-busts”, because, even if the prices are much higher (or lower) they will assume that the price is the correct price (if everybody is buying/selling at this price…) and, instead of buying when the price is low and selling when is high (automatically correcting the excesses of the market), thy will buy when the price is high and sell when is low (amplifying these excesses).

[sorry by my bad English]

I think that there is a misconception that this kind of analysis can be reduced exclusively to a numerical exercise.

No stock trades (or should trade) at below its book value--that is to say, the share's proportional entitlement to the net assets of the corporation if it was immediately wound up. Realistically, the share should be valued at it's proportional entitlement to the value of the corporation as a going concern.

The problem with that exercise is that you have to make a lot of assumptions about the fair market value of future values. How much is a contract to supply widgets to the Government of the United States worth? Unless you have detailed information about the supply chain and cost to produce the good or service in question, it's nearly impossible to do anything other than make an educated guess.

Meanwhile, the whole purpose of equity investment (as opposed to debt or derivative investment) as it is practiced in the West is the acquisition of undervalued securities, and to sell them as they become true-valued (e.g. buy low, sell high). Your ability to sell high is based not merely in the fundamentals of the company, but also in investors (and primarily institutional investors) perception of value. Because those perceptions are, at best, based of differing assumptions about the intangible value of the company (e.g. its goodwill), a strict analytical approach to the market is doomed from the start.