Fundamental, Market Complex Truths Drive Stock Markets

Fundamental, Market Complex Truths Drive Stock Markets

June 2, 2020

PsyQuation CEO and Behavioural Economist Dr Michael Berman disseminates why stock markets are driven by two truths; a fundamental truth and a market complex truth – and why there can never be a formulaic approach.

By Michael Berman, Ph.D.

In the face of a global pandemic with more than 6 million people infected; 375,000 deaths; 40 million Americans filing for unemployment in the space of 2 months, GDP shrinking at levels not seen since the Great Depression, travel reduced by more than 90%, social events severally restricted and no vaccine insight for the next 12 months, not to mention the social unrest currently boiling over in the USA and Hong Kong, yet we are a few % points away from an all time high in the Stock Market Indexes, with many of our favourite names at all-time highs.

This begs a trillion-dollar question – why?

To answer this, we will need to do some deconstructing and unlearn some of the common wisdom that simply does not stack up to any high degree of statistical scrutiny.

We have been taught false lessons in fundamental causality such that if central banks print money in large amounts there will be inflation, today there is no CPI index in the developed world showing any significant inflation. We have been taught that if you are over leveraged the worst thing you can do is borrow more money, yet this is precisely what is being done now across, government, business and households.

We have been taught that unemployment affects the ability of mortgagees to repay the interest and capital on their loans, again this is not an issue today as mortgage owners are providing repayment holidays in the belief that this is only temporary and house prices are pretty much where they were pre-Corona. There are many more examples of the disconnect between what we believe to be a logical fundamental approach and the reality of price action on the ground.

Now before you class me as a heretic and an imbecile let me be the first to state that I in fact believe in the fundamental principles that are taught at universities and text books. I see these as broad navigation beacons leading to an eventual destination but the path from start to finish is heavily influenced by another more powerful force.

While I don’t believe in all economic and finance theories, I do believe that some represent a form of truth. The problem is that fundamental truths can take months, years, decades and sometimes centuries to realize. There is good reason for this to be the case. If in fact there was only one truth we would live in a deterministic world where our futures would be determined by the most sophisticated fundamental model and those possessed with the modelling skills to derive the formulae will enjoy most of the riches due to their genetic and circumstantial good fortune. Furthermore, a deterministic world of financial outcomes would rob us of our treasured free will. Who really wants to live in a world where we know the answers to tomorrow without some form of contest, how boring and unfair would life be?

Before we tackle the second truth that dictates the direction and influence of price action today, it would be wrong of me to say that mastery of the fundamental truth doesn’t provide advantages and a path to wealth that those not in the know will not have. If I didn’t believe in a fundamental truth, then I would be a liar and a fool as I spend a large portion of my waking hours studying fundamental models trying to assess which one’s “fit” best into the world in which I live. I therefore highly encourage people to become life time students of fundamental thought, but this is still a one-dimensional approach to understanding how the financial markets work. To understand the true nature of the markets is to try and tame Plato’s “many-headed and intricate beast”.

The second and most vital truth that drives the stock market is the collective psyche of the market. This powerful force is not driven by reason or logic it is impulsive by nature and is far more complex. In fact, over the last 20 years I have been developing a theory of understanding the beast which I call, The Market Complex in my started but far from completed book.

There are many different approaches to understanding the collective psyche of the actors comprising the buying and selling of a stock market. While I am attracted to approaches that involve modelling, this can in itself be a dangerous trap that belongs to the fundamental truth approach and should therefore be carefully handled so as not to be confused with the Market Complex.

What is the Market Complex I am talking about and how can it be applied to the stock market? This is not a simple approach and for me the solution finds its origins with the ancient mystics and in today’s language is refracted for me through the Jungian Archetype prism.

To get a better understanding we are going to briefly define two concepts: archetype and complex.


They are defined as universal, archaic symbols and images that derive from the collective unconscious, as proposed by Carl Jung. They are the psychic counterpart of instinct. That is to say they are a kind of innate unspecific knowledge, derived from the sum total of human history, which prefigures and directs conscious behaviour.


A complex in Jungian terms is a feeling toned idea or image that over the years accumulate around certain archetypes. Complexes are in fact “splinter psyches” and can interfere with the intentions of the will and can disturb our conscious performance. Complexes themselves are not negative but they can have negative effects.

The stock market is not just doing battle at the micro buyer and seller level but rather the direction of the market is heavily influenced at a more macro level by the twin truths of the current fundamentals and the prevailing market complex.

The current market fundamentals paints a pretty bleak picture, but what are the forces driving the current market complex?

This is where things get complex and require an ability to analyse the symbolic world. We are forced to act as analyst and understand what archetypal forces are affecting our society and in turn the markets they comprise.

For decades we have been under the influence of an extremely powerful Saviour Archetype. There is almost universal belief that central banks and their figurehead governor is blessed with unlimited omnipotent powers to save the day. Due to our societal complexes, we wish to believe in its alchemical powers. However, we do know through our conscious understanding of fundamental truths that printing money at will cannot solve our problems. This dissonance is what is currently at war in the collective psyches’ of the markets with the unconscious market complex prevailing through its shadow projected beliefs in the saviour archetype.  Jerome Powell the Fed Chair said to Congress on the 29th April 2020, “we will do whatever it takes” it is these emotive, hopeful, powerful words that continue to fuel the market complex.

Complexes by their very nature are random which makes predicting impossible. This leaves us with the all-important question of – what value does understanding a complex provide?

Stock markets are driven by two truths; a fundamental truth and a market complex truth.

The fundamental truth provides us with the likely direction / outcome for the market, but this truth is subservient to a more powerful and unpredictable truth which is the market complex as represented by the collective psyche of the markets’ participants.

The collective behaviour of the market is so powerful that it can influence and sometimes alter the fundamental truth, as an optimistic market complex can lead to economic activity that can change fundamentals. It is for this reason that understanding the market complex and measuring its potency is of vital importance to one’s approach to market analysis and investing.

This is the reason why the stock market and trading it is not something you crack through a single formulae approach, rather it is far more complex and unpredictable. The true market specialist has the skill of diagnosing two relative truths and making sure to position themselves for when these two planes align in rare absolute truth.

(Ed. Psyquation CEO & Co-founder Dr Michael Berman says he was the former CEO of an online emerging manager incubation platform and a hedge fund manager for more than a decade, working for a number of leading South African investment banks. Dr Berman says he has a Bachelor of Commerce (Economics), Master of Science (Real Estate) and a Ph.D. in Economics, Behavioural Finance.)


Leave a Reply

Your email address will not be published. Required fields are marked *