Whenever stock market volatility spikes, ton of “expert” opinions starts floating around. You can always find a compelling narrative when markets rally, and an equal counter-narrative the moment they dive in the opposite direction.
A common pattern running through these stories is how tactfully data is manipulated to force-fit a theory. In behavioral psychology, this is known as the “framing effect” i.e. the practice of twisting reality simply by changing how information is packaged and presented.
So, how do you separate credible insights from noise? While absorbing any financial narrative or opinion, I try to ask four key questions –
- Does the actual reason for the outcome match the original assessment of the forecast? Suppose an expert analyst predicts that “Company X stock price will drop over the next two quarters due to rising market competition.” The stock indeed plummets, but because of an unforeseen geopolitical crisis. Does the analyst deserve credit for being “right”? Not at all. Accidental accuracy is just luck, not a skill to be taken seriously.
- What new facts triggered a shift in their view? A true sign of intellectual strength is the adapting to fresh data, regardless of reputation. Hence, dive into what was the factual data that triggered the change in viewpoint. However, if an expert abruptly flips their theory without a clear, data-backed rationale, view it with deep suspicion.
- Is the “expert” a perennial bull or bear? Michael Burry has been famously predicting another market crash for years, and eventually he is bound to hit the mark. If I claim a massive storm will strike my city, chances are it will happen someday, even if no one knows when. Valid financial opinions and forecasts must carry a time horizon. A bull or bear thesis without an expiration date is meaningless; an open-ended forecast is highly suspicious.
- Has the “expert” openly acknowledged past mistakes? The most important of all! There is no bigger warning sign than an analyst who claims to be “always right.” Take the infamous Bernie Madoff Ponzi scheme, which wiped out $20 billion of investor wealth. The fraud was first detected by Harry Markopolos, an options trader and financial analyst. Interestingly, he noted that it took him less than five minutes of looking at the numbers to realize Madoff was running a scam. But his initial red flag before diving into the mathematical data was simple intuition that “It is not humanly possible to be that consistently good at investing.”
The Deception of Selective Framing
We are currently getting hit by a barrage of global events, be it the prolonged Middle East conflicts, rising US 10-year Treasury yields, inflationary pressure due to elevated crude oil prices, or the growing anxiety around AI debt financing and ROI. They all seem to be converging unfortunately at the same time to form a perfect storm.
For market pundits, this offers a prime opportunity to combine framing and fear-mongering, the two best-selling genres in financial storytelling.
Consider this talking point – “Equity investments aren’t good enough. You would have made more money investing in fixed instruments over the last 2 to 3 years”.
There is a very tactful view of presenting a point which is unfortunately half-accurate i.e. only the latter part. It relies on selective timing. The NIFTY 50 index has delivered zero returns over last two and a half years. Or worse if you shift the start point to a more convenient peak (like Sep 2025 or Jan 2026), the numbers look even worse, dipping into double-digit negative territory.
So does that make equities a bad investment choice?
Not if you change the frame.
Zoom out on that exact same chart. Choose a challenging entry point say, right before the COVID crash and evaluate it today, after markets have been battered by recent macroeconomic pressures. Even with that near-worst-case timing, an investor would still sit on an 80% absolute return over six and a half years. That’s roughly a 9.5% CAGR yielding a post-tax return of around 8%. Compare that to fixed-income instruments, which would have barely delivered 4-5% post-tax over the same period.
Same market, different frame. And the narrative is flipped!
Similarly, Mutual Fund SIP investments have been a target of heavy criticism. Sure, most index and actively managed funds would be showing underwhelming performance over the last one to two year window. But what is the context of those raising these doubts?
To bring home the point, here is a chart of two representative mid-cap funds’ rolling returns of 5-year window. The way to interpret this is, pick any SIP investment done since Jan 2016 – that SIP tranche would have given at least 10% annualized returns over a 5 year holding period. Give me a more better example of “risk-free return” investing backed with data!
We can come up with endless such frames to validate our biases, but the real question every investor must ask is Which frame actually matters, to my goals?
At the same time, staying anchored to historical events and patterns goes a long way to avoid chaos in mind. All that needs to be done is rediscovering patterns that remain same as ever, instead of saying – “This time it will be different”. Ask yourself binary (YES/NO) questions such as, “Have volatile equities every dipped below 20-30% from their All-Time?”, or “What is the median time taken for an index to reclaims it’s All Time High over the last 2 decades?”
In almost every cycle, you’ll discover that there are no new phenomena, only old patterns taking new shapes. A market that ignores global economic and political shocks is in a bubble; a market that reacts to them is behaving normally. What we are seeing today is simply market mechanics at work.
Be patient, stay disciplined, and watch out for broken clocks!
