Ridiculous Reasons

We make fun of the business headline writers pretty often here, but I missed out on a really great opportunity to continue the trend last week, when it was widely reported that cooler weather had somehow led to outperformance in the retail sector. Specifically, the better-than-hoped-for (or even in-line) comparable sales reports from the likes of Nordstrom (NYSE:JWN), Gap (NYSE:GPS), Wal-Mart (NYSE:WMT), and Saks (NYSE:SKS) were attributed to shoppers in search of new duds.

You don't need to follow the cold-weather breadcrumbs too far back in the headline files to see the irony here, or is it idiocy? Cold weather caused shoppers to open their wallets? Isn't cold weather the thing that the same headline writers said would be to blame for upcoming consumer inactivity? Specifically, that the early arrival of cold weather, coupled with high energy prices, would spike home heating bills and therefore reduce consumer spending?

Both ideas make sense in the abstract, but they both can't be true, can they?

Why do we continue to see nonsensical headlines like these? Because neither we nor our news gatherers are well-equipped to observe something without attributing to it a cause. In a field like, say, virology, this is a fine instinct. But in investing, it can be deadly.

First, these rationalizations -- especially the weather -- are very often complete bunk, except in specific instances, such as a reinsurer that takes a hurricane wallop, like Berkshire Hathaway's (NYSE:BRKa) General Re. Moreover, these purported economic indicators change every couple of days, or as often as the headline writers are able to get someone with an important-sounding title (i.e., an "expert") to give them a far-reaching opinion to put at the top of the page.

But a deeper problem is that the ready excuses serve to whet our appetites for more, so that we demand a rationale for every move in the market or a company. Nasdaq is down today? Must be consumer pessimism. Or profit taking. Or a bad report from Dell (NASDAQ:DELL). Is your stock rising or dropping the day before an earnings report? Market makers playing games? Someone big must know something? Don't count on it.

The market is an irrational beast. Some things happen for reasons, and some things just happen.

Related Foolishness:

• Listen to our Taking Stock podcasters discuss the disappointment at Dell.
• Should we be surprised that shoppers are back?
• Study the patient investor's guide to profit.

Seth Jayson loves the opportunities that market irrationality offers investors who can see through the static. At the time of publication, he had no positions in any firm mentioned. View his stock holdings and Fool profile here. Gap and Dell are Motley Fool Stock Advisor picks. Fool rules are here.