The Herbalife HLF competition between Icahn and Ackman is a great reminder that markets are essentially social.  Its easy to forget, or to think otherwise with the increased machine generated volume, algos, dark pools, quants, and HFTs getting a lot of attention; but the fact is markets are still driven by perception within a social context.

 

I  know it sounds overly simple, but the simple truth is that markets go up because others are willing (or throwing in the towel on a short) to pay higher prices than the previous prices. Its basic auction theory. I’m not talking about a few ticks, I’m talking market moves.

 

I previously wrote about it here – Predict People to Predict Markets. I also mentioned it when Tim Bourquin interviewed me for his book, “Traders At Work – How the Worlds Most Successful Traders Make Their Living in the Markets Everyday”. And my clients hear it from me all the time.  The best traders not only understand it, they use it as a tool. I’m also presently writing, along with two other trading psychologists, Denise Shull and Ken Celiano, a chapter on this very subject in an upcoming academic book on behavioral economics.

 

Yes, publicly Icahn says he just wants to make money and Ackman’s short gave him the opportunity to buy ‘shares on sale’. But I can tell you from many private conversations I’ve had with traders of all different stripes over the years, the desire to ‘beat the other guy’, or to at least not be beaten by the other guy can be just as powerful as the desire to make money. Perhaps even more powerful for some.