"How does the market really work? The truth is, it’s a big fashion show. People mess up because they focus only on the merchandise, the stocks, and not on the audience, the buyers—all the big funds that do most of the transactions on any given day. In the press and in most of the Wall Street research departments, everything is about the companies, their earnings, their products, sometimes their management. I spend plenty of time talking about all of that, too, but always within the context of what the big institutional investors want, what styles they seem to prefer this season. I know how the big institutional money managers think because I was one of them and because I have been predicting their behavior and buying stocks accordingly, for almost as long as I’ve been a professional. The truth is that the people who control most of the money that moves the market tend to think the same way. They were all trained at the same funds or investment banks, they all know each other, they all gobble up the same conventional wisdom, and they all buy the same stocks. The way the market really works is the way these big-time investors operate. Stocks don’t naturally gravitate to a special level where they become “properly valued.” They go where the managers of the institutional funds send them. The market is a plutocracy, not a democracy. The big institutional money managers are the market. Keeping track of their ever-changing tastes is the key to success."
http://nymag.com/news/features/32382/index2.html