KEY POINTS:
One of the first things you get taught as a financial services industry journalist is that you should never, ever, associate investment with gambling.
So no pictures of a roulette wheel, dice, cards, pokie machines or horses were allowed on the covers of magazines I've worked on.
The mythology of funds management is that it's a rational profession whose task is to put an exact price on everything: it's science, not a series of flutters on random outcomes.
But despite its best PR efforts, the link between investment management and gambling just doesn't go away. And the popular image of the stock market as one big casino in many respects is justified - there is a large degree of chance in all investments.
Because of that, the funds management industry does attract risk-taking personality types - also known as mad punters. You'll find many of them today, ensconced track-side in marquees, drinking wine and betting up large on the Melbourne Cup. It's a lot of fun.
The wild swings in world share markets over the last few months would only have reinforced the view that these people are taking the same kinds of chances with your money.
Most managers would disagree, citing investment styles that rely on a disciplined process and logic. As a whole, though, it's clear investment markets don't track closely to rational theories.
Indeed, a research unit at the University of Technology Sydney has been established to why markets don't work. One of the first papers published by 'The Paul Woolley Centre for Capital Market Dysfunctionality' has concluded that clashing investment styles "may be a source of the many market anomalies and serious thought should be given to policy, economic and social implications of equity pricing consistently not reflecting fundamental value".
In fact, the paper suggests, the price may not be right for quite a while.
"The fact that a significant proportion of markets is now in the hands of investors who utilise a limited subset of information is suggestive of the possibility that security prices might depart from their fair value for extended periods of time."
I'm off to bet on the Melbourne Cup. Any tips?
David Chaplin
