markets
Reflexivity
The rule
Prices and the real business feed on each other. A rising price can create the very hope that pushes the price even higher.
Where it flips
Not every price move rewrites the business. Many moves are just noise around a steady company. Reflexivity matters where the price actually feeds back into funding or behaviour, not everywhere.
Soros argued that markets are not a passive mirror of the business. The price itself can change the business it is meant to reflect. A rising share price cuts a company's cost of raising money, funds its growth, and feeds the hope that lifts the price again. The loop runs until it reverses. The reader watches for these self-feeding loops, instead of assuming price and value move on their own.
A worked example
A reader watches an Indian real-estate company whose climbing stock lets it raise cheap equity, buy more land, and post the growth that lifts the stock further. It is a loop, and it runs just as hard in reverse when the mood turns. [illustrative]
How to spot it
- ·a rising price cutting the cost of raising money
- ·hope funding the growth that then justifies it
- ·a self-feeding loop in either direction
- ·value and price no longer moving on their own
George Soros · The Alchemy of Financial Markets