People climb, markets don't.

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Stop Thinking About Markets as if They Were Human

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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Act. v. What a financial market supposedly does. As if it were a living creature with a sense of self and volition . . . Depicting a financial market as an athlete sprinting, leaping or cliff diving makes news coverage more exciting than a droning flux of numbers.

The above definition is from "The Devil's Financial Dictionary," Jason Zweig's market-focused version of Ambrose Bierce's brilliant early-20th-century satire on the meaning of common words.

Zweig cites research by Michael Morris, a professor at Columbia Business School, who wrote (with three other professors) a paper titled "Metaphors and the market: Consequences and preconditions of agent and object metaphors in stock market commentary." The conclusion: How commentators speak about markets can influence investors' opinions.

The researchers divided market punditry into two distinct metaphorical approaches, which they call "agents" and "objects." Those who employed agent metaphors "describe price movements as action, as the volitional, internally-driven behavior of an animate entity. This type encompasses anthropomorphic description as well as description of the market as like an animal."

Examples include "the Nasdaq climbed higher," or "the Dow fought its way upward," or "the S&P dove like a hawk."

The object approach uses metaphors to describe price movements "as events in which inanimate objects are buffeted by external physical forces." For example, "the Nasdaq dropped off a cliff," or "the Dow fell through a resistance level," or "the S&P bounced back."

We know from Princeton professor Burton Malkiel that markets take a random walk, without a predictable pattern or memory from day to day. Hence, describing markets as having volition or the ability to act on their own might be colorful and make dry reports more readable, but it isn't in any way accurate.

Here is where things start to get really weird: Morris et al. found that when observers were exposed to agent metaphors, they were much more likely than they otherwise would be to expect the prior day's price movement to continue the next day. As it turns out, the language we use to describe market moves changes both our expectations and our behavior.

This research is particularly applicable this year. Major U.S. stock and bond indexes may be little changed year-to-date, but there have been huge swings. Commodities, on the other hand, have had big declines, with oil, copper and gold all at multiyear lows. Next time you read or hear a report describing a day of trading, pay attention to the language used. Do the words convey positive or negative attributes? Then ask yourself how you feel after taking it in. Remember this: The commentators who spice up their observations by using metaphorical language may be clouding your judgment by eliciting an emotional, rather than rational, response to market reportage.

The important thing to be aware of is that getting swept up in market commentary can be detrimental to your portfolio.

Zweig makes a modest suggestion that should have the desired affect upon any consumer of commentary and market news (and if you are reading this column, count yourself as one of them). Whenever you see an anthropomorphic description or "action verb" describing what happened, translate it into a percentage basis.

Make the sentence "The Dow jumped 100 points today on strong earnings reports" into something more like "Industrials rose 0.4 percent for reasons no one understands."

Your portfolio, if it could think, act and speak, would thank you. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Barry L Ritholtz at

To contact the editor on this story:
James Greiff at