One of the critical mistakes people are guilty of – we see it all the time in the media – is believing that changes in security prices are the result of events: that favorable events lead to rising prices and negative events lead to falling prices

One of the critical mistakes people are guilty of – we see it all the time in the media – is believing that changes in security prices are the result of events: that favorable events lead to rising prices and negative events lead to falling prices. I think that’s what most people believe – especially first-level thinkers – but that’s not right. Security prices are determined by events and how investors react to those events, which is largely a function of how the events stack up against investors’ expectations.