The Market is a Mood, Not a Mystery Math Problem
“As I look back now, it’s obvious that studying history and philosophy was much better preparation for stock market than studying statistics…those who are trained to rigidly quantify everything are at a huge disadvantage.” – Peter Lynch.
Today we tip our hats to the original market philosopher: Adam Smith, the intellectual father of capitalism who was baptized this day in Kirkcaldy, County Fife, Scotland in 1723. Smith’s famous “invisible hand” theory where self-interest ultimately benefits the public good still forms much of the backbone of economics today.
It was the Age of Reason, when the intellectuals of Europe emphasized science and rationality over superstition. The philosophical movement sparked revolutions, rewrote economics, and reshaped society. Yet today, philosophy is often seen as impractical except, perhaps, in France, where Sartre, Descartes, and Voltaire remain widely celebrated like rock stars.
Philosophy, derived from the Greek philia (love) and sophia (wisdom), is the systematic study of fundamental questions about knowledge, value, reason, and the nature of reality. In the 17th century, thinkers like Pascal and Descartes debated not just thought, but feelings, distinguishing “passion” (fiery, unruly) from “sentiment” (tempered, collective judgment). Sentiment became the domain of the thoughtful observer who was considered less reactionary and more reflective. As it turns out, that concept made its way to Wall Street.
Market sentiment, that famously spongy yet indispensable force guiding buyers and sellers borrows directly from the language of refined emotional intelligence. It isn’t about hysteria or euphoria but about the half-logical, half-emotional posture that prices take when investors feel they’re right, even if they aren’t. As Smith and other 17th century thinkers might say, it’s not purely irrational but perhaps it could be characterized as a different sort of reasoning. Often called the third leg of the stool right after fundamentals and technicals, sentiment is arguably the most powerful mover of all, even it it’s hard to quantify.
Smith and his friends would likely raise a skeptical eyebrow at today’s algorithm-driven optimism, where trading decisions are made in nanoseconds by machines that feel nothing but follow everything. Certainly, they’d have a few thoughts on the very visible and often theatrical hand gestures of Trump, whose tweets sway indexes like a maestro with a megaphone. Smith like Trump (though for very different reasons), understood that people don’t make decisions based on elaborate equations, but on perceptions, instincts, and the stories that we chose to believe.
Markets may run on spreadsheets in theory, but in practice, they’re powered by stories we believe to hold true, until reality proves otherwise.
