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Wednesday, January 04, 2006

Worse than astrology 

Worse than astrology: "The Guardian has killed some innocent trees to give its share tips for 2006. And in doing so, it merely demonstrates that the dead tree industry knows nothing about financial markets.Take this from Neil Hume: The housebuilding sector has enjoyed a strong run over the past year and I expect it to continue. Interest rates are unlikely to rise in the year ahead, and Persimmon's £640m bid for Westbury will probably spark copycat deals as leading players look to bulk up. I think George Wimpey, the housebuilder, is worth backing at 480p. The company will either acquire or be acquired. What Neil fails to tell us is why these considerations are not already priced into Wimpey's shares. Why are investors overlooking these arguments?Now, I'm not picking on Neil here: his colleagues all make the same mistake. They seem to think tipping shares is about companies. It's not. It's about investors. Whenever anyone claims that a share is worth buying, what they are saying is that the market is mistaken, that other investors are overlooking something*. Which naturally raises the question: why are people mistaken even when they have strong incentives to get things right? This, of course, is where behavioural finance comes in - not that you'd guess from the Guardian's share tips.I suspect the main loser from this nonsense is n"

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