Fisher Investments Press: 20/20 Money: It’s a Game of Relative Expectations

Once Fisher Investments Press author Michael Hanson has identified a useful pattern we must then understand it in context. Facts without context are essentially meaningless. For example, what if someone said to you, "six billion"? What information can you glean from that? What can you do with it? Not much of anything. Is six billion a lot? A little? What if next that person said, "three trillion"? Now, does six billion still seem so big? No. We have a little context and we can say that six billion is not very big relative to three trillion. What if then he said “ten.” Now we have even more context. We know that six billion is big, but ten is tiny, and three trillion is really huge. All just on context.

Fisher Investments Press author Michael Hanson believes it's good to apply this sort of contextual thinking to pattern seeking. Is a $20 billion bank bailout by the Fed big? Seems huge, right? Really, it isn't. They do trillions in lending every year. $20 billion is a drop in the bucket.

Context is sometimes called framing, and is essential, because in a world that's constantly changing, we can only understand things relative to other things. Fisher Investments Press author Michael Hanson believes market history provides a useful framework (or context) for better understanding future market direction.

Perhaps we’re worried about inflation today and want to see if there's an identifiable pattern between inflation and how markets work. If we go back in history and see inflation was much higher in the past and markets still muddled through, then we have some context letting us know it's relatively not as bad as currently believed.