Ritholtz on the Stock Market Meltdown

In a recent Bloomberg article, columnist Barry Ritholtz offers a tongue-in-cheek “after-the-fact explanation in great detail and with complete and utter certainty of what just occurred in the markets, and why.”

Ritholtz goes on to explain that hindsight renders last week’s “sudden and unexpected decrease in share prices” as obvious, but adds, “the alternative to this soothing narrative is an unimaginable world of random disconcerting events. This stands in stark contrast to how we prefer to see the world around us: orderly, predictable, subject to expert management and prediction.”

He points out that the decline left the S&P 500 index “all of 5.2 percent below its September high” and quips: “But enough with the facts. Go right ahead and feel free to try on any of your favorite after-the-fact explanations about why markets fell. It really isn’t that hard. Just take your favorite pre-existing belief system and seek out facts that are consistent with that.”

In reality, Ritholtz concludes, the best explanation available is the “random walk thesis of how markets move.” Looking back at events can make them seem obvious. “But if they were so obvious,” Ritholtz concludes, “why didn’t we see them coming?”