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Fooled By Randomness: Price Wise & Volatility Foolish
When Russia invaded Ukraine, stock price volatility was more revealing than closing prices…
I logged on to my brokerage account at 9 a.m on February 24, 2022, the day Russia launched a large-scale invasion of Ukraine. I noticed that the value of my portfolio was not only considerably lower but that many of my resting limit orders had been triggered. Several of the stocks purchased that morning had already experienced price reversals, making them profitable — a telltale sign that intraday price swings had been unusually pronounced.
Four hours later, at the close of the market, my portfolio was in positive territory for the day. The S&P 500 had closed 1.5% higher.
A few hours after the market closed, I opened Nassim Taleb’s book Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets. Picking up where I had left off on page 216, toward the end of the chapter titled “Randomness and Our Minds: We Are Probability Blind,” I notice Figure 11.1 depicting graphed data points “containing signal and noise.”
In light of the stock market’s reactions to the geopolitical events of the day, I smirked and thought, “This graph resembles the intraday price swings that my portfolio experienced today!”