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Any new investor who hopes to successfully buy and sell stocks should know that the market is not rational, Jim Cramer said on CNBC's "Mad Money." And desperate attempts to make sense out of the nonsensical can cost you.
Sometimes stocks or the whole market will go up or down for reasons that have nothing to do with the underlying prospects of actual companies. Sure, you’ll search for a legitimate answer and the media will offer a few as well. But there will come a point where you’ll have to admit, Cramer said, that the moves are “just nuts.”
Here’s one way to put things in perspective, though: If the market’s wild fluctuations can’t be explained by business fundamentals, then they are most likely the effect of money-management fundamentals.
A lot of times money managers, namely hedge funds , will be caught on the wrong side of their trades. They start selling to raise cash because their clients want their money back. Then their selling scares other investors into dumping their own positions, and stocks are brought down across the board. Next thing you know some pundit is on TV trying to explain why gold, historically a protection against volatility, is down on a day when the markets plummeted, too.
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