The human tendency to construct coherent stories from random or loosely connected events — creating an illusion of understanding and predictability where little exists.
Deeper Explanation
Markets generate vast amounts of noise. Human minds, wired for storytelling, connect this noise into coherent narratives: "The market fell because of inflation fears." "The stock rose because the CEO impressed analysts." These narratives are usually post-hoc rationalisations — the event occurred for many reasons, and the story is a simplification. The danger: confident narratives make investors feel they understand market movements better than they do, leading to overtrading based on "analysis" that is really pattern-matching on noise. The antidote: separate what you observe (price movements, data) from what you construct (explanatory narrative) and hold narratives lightly.
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