The Swedish Behavioural Economist

Category Archives: Capital Markets

People in finance like to flatter themselves by trying to keep equity markets in a black box, dressing in pinstriped suits and throwing financial terminology around them. So are financial decisions in capital markets complex? Should we consult experts to make clever investments?


The truth is that there are many people who’s job is to understand capital markets but as the markets are truly chaotic, they have the same chance to perform their job well as a ice cube can survive in hell. We just do not know what will happen in the next few months as we do not know what people are up to: some people sell and some people buy, for various striped reasons.

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How we wish that we could understand capital markets. Then it would make sense to do all the things we currently are doing, like make short-term forecasts on equity markets and certain equities. However, predicting markets does not make any sense at all. Improving companies and their communication however does.

Fyr i storm

Historic development of equity prices cannot be predicted because it is truly chaotic. So many uncontrolled forces are at work and their unpredictable interactions are so complex those extremely small variations in the strength of the forces and the way they interact can produce huge differences in outcomes. Historic equity market development is what is called a “level two” chaotic system. Chaotic systems come in two forms.

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(when cruising in the 21st century)

This pharma company is not different from other companies except that it may have gone public a nudge to early; did not make it over the critical hurdle; the share price fell apart a few months after the final road show. So apart from struggling with product development and staff problems, Tom, the eager young MBA at the rudder, is increasingly feeling the pressure from the board and main owners over the poor stock performance.


The investment bank got it all wrong; going public was not heaven. In fact, it was the basement nest to hell; and the problems started when the company went public.

It is clear that too many companies go public without a real plan for stakeholder engagement.

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We are so used to our surroundings that we do not appear to notice that the equity market has gradually lost its original function and turned into a non-scientific and highly unnatural bogus arrangement. It is of benefit only to the parasites being advisors and calling themselves “the market”. I confess to being a low-life parasite.


At the outset, entrepreneurs met investors in one-off arrangements. This worked well when a voyage to east India was being financed but it becomes unsuitable for long-term ventures like an on-going enterprise. The equity markets turned into stock exchanges and is now a digital and global animal. Along the way, the markets switched its focus from financing to the trading of shares in large companies, entities that does not need financing.

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