Learning to live with the noisy gyrations of the stock market

Groan. The Nasdaq, again. It's dropped 100 points, and it's only 10am. Before I looked, I could tell from the commotion outside my office door that the market was gyrating in the form that's become all too familiar in recent months. I can imagine the same scene in offices all over Silicon Valley, from San Jose to San Francisco, to Emeryville and Oakland and the hi-tech centres farther out in the East Bay.

Groan. The Nasdaq, again. It's dropped 100 points, and it's only 10am. Before I looked, I could tell from the commotion outside my office door that the market was gyrating in the form that's become all too familiar in recent months. I can imagine the same scene in offices all over Silicon Valley, from San Jose to San Francisco, to Emeryville and Oakland and the hi-tech centres farther out in the East Bay.

In countless cubicles, people stop coding, stop writing documentation, stop answering e-mail and ICQ. Millions of browsers get pointed to market sites, stock ticker programs are launched or brought to the foreground. Voices are quiet, then a burst of keyboard noise as people log in to trading accounts, trying to get out of stocks before they hit bottom.

When the drop is really bad, shellshock sets in. I walk by a colleague who says, "Nasdaq's down again. So when is it going to go up?" Furtive eyes looking for an answer.

Good question. Of course, my answer has always been along the lines of: "Don't worry. It'll come back." Some of my young colleagues take my greying hair as a badge of wisdom, and are reassured, while others look at me as if I've just suggested that the space aliens who've taken up residence in my hard drive will be happy to have them in for lunch today.

The stock market inevitably gyrates. Systems of every stripe are characterised by noise - random or other unintended, unwanted events. If the noise level is too high, the system may become unusable - too much static makes your mobile phone useless.

In complicated systems, noise tends to rise much more quickly than signal, and the stock markets are famously complicated. So complicated that stock brokerages hire mathematicians and theoretical physicists to study them. So a certain amount of gyration is inevitable.

Add to that the fact that we're flighty creatures by nature and have this wonderful illusion that we can fully control our destiny. So we sell when we're uncertain, and buy when we're sure.

Whole recessions have been caused merely by enough of us being unsure of the future, for whatever reasons, real or imagined. Republican or Democrat president, globalisation or isolation, economy too slow or too fast - all have been reasons for economic misery. It happens like this: We stop spending, which causes the economy to slow down. The resultant dip assures us we were right, and we spend even less, prompting the stores and factories and service providers who employ us to make us redundant, which causes the spiral to steepen - a self-inflicted, self-fulfilling prophecy.

The stock market's frequent mini-panics since March or thereabouts are just the same phenomena acted out in internet time. Hundreds of thousands of people watch the same headlines on a handful of websites and other media, and react in concert to crashing dot.coms, technology news and political developments.

A day-trading group mind now prowls the Net, as unpredictable a beast as any Friday night street mob, hanging out on the corner at closing time. Most of the time, nothing happens and everyone staggers home. Occasionally, a bottle or a brick gets thrown and a whole cascade of craziness races quickly out of hand. Participants will later talk about being caught up in events, reacting without understanding. Voilà , the stock market in 2000.

My certainty about the market recovering is based on personal history. In particular, I watched the market fall on Black Friday in 1987, mere months after I had committed my small savings to stocks. I have since seen those same small investments grow far beyond my expectations, or anybody else's, for that matter. My father-in-law lived through much worse events in 1939, and ponders them from the comfort of a well-financed retirement.

If you look at a chart of almost any stock market over almost any long time period, you will see a pronounced upward trend - dips, swings, crashes and other noise notwithstanding. This is because the market tracks the growth of wealth in the world, and that has been a one-way process since we came down from the trees or out from the caves or wherever it was we were before we decided it was time to get the evolutionary ball rolling in the general direction of 21st century wonders such as Ananova.

I've also watched successive waves of hi-tech companies sacrifice themselves on the altars of venture capitalists' risk equations. In the past 20 years, chip companies, computer companies, software companies, internet service providers and internet software companies have all taken their turn going over the same cliff that lately is beckoning the dot.coms.

Been there, done that, and survived to tell the tale. It is true that I'm a little nervous about the debut of a global network, where news, and rumour, can travel at unprecedented speed. I'm also of the mind that the same network is bound to accelerate the rate of change of technology and other human pursuits.

At 300 million nodes, the internet is only accessible to approximately 2 per cent of the global population. I already get e-mail from Irish computer scientists working in Venezuela and penguin aficionados in Japan, so things are likely to get a lot more interesting down the line.

So, maybe all bets will be off. But, come to think of it, as long as humans are at the keyboard, I'm not worried. The market? It will come back.

cg@gulker.com