Buying BTC following Elon Musk’s tweet is a rational step

Judging by the stream of current comments about the markets, we are in the midst of a season of nonsense: individuals have purchased shares in an online gaming retailer on the recommendation of unnamed Reddit users, or people are buying cryptocurrency as a result of just Elon Musk, the world’s richest man, tweeting a cryptic image of Bitcoin.

Chaos in the world and investing

Many experts imagine that these are all wild, irrational habits-first-time buyers demonstrating their amateurishness. “This is just a form of stupidity that we have to get used to at this stage of the longest bull market movement in history”, wrote Monetary Events columnist Kathy Martin.

A finance guru is sometimes considered a rational retail investor because it is a creature invented by economist Benjamin Graham. In his e-book “The Smart Investor”, Graham invited his readers to take a close look at the annual experience, earnings reports, and various financial statements. And certainly the historical past of the markets tells us that there is a lot of interest in this method, based on elementary careful research, even when it is often despised during galloping bull runs like the current one.

In addition, it is safe to say that the Graham method will not be the norm. Traders need time, or they know too little, or they listen to unhealthy recommendations, or they are too self-confident, or they become victims of prejudice. A thousand or… They demonstrate what the economist John Maynard Keynes called “animal spirit” and another economist, Herbert Simon, called “ bounded rationality.”

The kind of rational investing in which day traders buy stocks solely because they understand the basics of the organization was unusual even before it happened with GameStop and Musk. In fact, it can be argued that this is currently an infrequent phenomenon even among institutional buyers, given that many purchases and sales occur every second, under the influence of algorithms that process huge streams of usually unrelated information.

But what if there are different methods to be rational?

For many people, the financial markets must have been quite challenging over the past 12 months. The economy struggled with the pandemic, but the indexes continued to rise. Alarmed shouts of “Bubble!” were heard all the time, but nothing burst except the governments ‘ promises of financial stability.

The warnings are difficult to interpret. In this mess of conflicting information, buyers began to look for clear indicators of upcoming actions within the value of their capabilities.

They found these indicators on Reddit and Twitter. To be precise, they found indicators of how different buyers will behave in a short period of time. It is now clear that when Musk shouts about Bitcoin on Twitter, its value increases. It happened with Sign and GameStop, it happened with Dogecoin and Bitcoin. The connection between a tweet and a group’s collective response can also be irrational. However, the ability of a person to anticipate such a reaction, and to anticipate at least a short-term increase in value, is rational.

Again, Keynes explains everything. It provided a method to take into account when buyers will promote their GameStop shares. It essentially states that a good investor will buy things that others may also have to buy.

“The fact that the thesis is wrong does not mean that we should not always invest in it if different people think the same way,” wrote George Soros, an experienced speculator. In other words, finding some clear clue to a group’s habits can also be a rational factor, especially in a confusing market and amid dizzying chunks of often contradictory information.

The market is rewarded for this method properly, no more than for a short period of time. That this happens even with Dogecoin, a jokey cryptocurrency named after the dog meme, is a mirror image not of the irrationality of the investor, but of the caprice of the market itself.

We are not talking about Bitcoin as such. We are talking about the fact that humanity is trying to survive.

Source: https://decimal.news/buying-btc-following-elon-musks-tweet-is-a-rational-step/

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