Market irrationality

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Richard1580
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Market irrationality

Post by Richard1580 » Wed Oct 24, 2018 5:19 pm

I was listening to Bloomberg radio the other morning when they reported that while Caterpillar had beaten analysts’ estimates for the 3Q, the stock was down 8% pre-market. Granted, the stock had been dropping (along with the rest of the market) since the beginning of the month. Still, it got me musing.

[OT comment removed by admin LadyGeek]

There seems to be no rhyme or reason to market movements. The market is like a herd of gazelle. One animal bolts and the others follow without any idea why. They just don’t want to be left behind (and possibly eaten).

I abandoned buying individual stocks and embraced indexing many years ago – long before I discovered Bogleheads. Now I am comfortable with my AA and when the market bolts downward my reaction is “Oh! Tax loss harvesting time!”

I would probably feel differently if we have a repeat of 1929, but a repeat of 2000 or 2008 is just fine. Kick back, pour a drink and watch the show.

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Re: Market irrationality

Post by sport » Wed Oct 24, 2018 5:30 pm

Richard1580 wrote:
Wed Oct 24, 2018 5:19 pm
There seems to be no rhyme or reason to market movements.
It's just a combination of greed and fear.

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Re: Market irrationality

Post by midareff » Wed Oct 24, 2018 5:42 pm

It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.

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Re: Market irrationality

Post by Artsdoctor » Wed Oct 24, 2018 5:49 pm

midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."

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Re: Market irrationality

Post by midareff » Wed Oct 24, 2018 5:59 pm

Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
I don't want to get all Bogle on you BUT; with a properly designed portfolio I, or any retiree who went out with enough, can remain solvent longer than the market can remain irrational. That's a retiree's conservative portfolio.... equities, bonds, CD's, savings and money markets.

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Re: Market irrationality

Post by midareff » Wed Oct 24, 2018 6:02 pm

midareff wrote:
Wed Oct 24, 2018 5:59 pm
Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
I don't want to get all Bogle on you BUT; with a properly designed portfolio I, or any retiree who went out with enough, can remain solvent longer than the market can remain irrational. That's a retiree's conservative portfolio.... equities, bonds, CD's, savings and money markets.

I've got nothing to prove, no goals to reach except how many countries and states we can get to in our travels. Used to be I couldn't understand the purpose of a bond. Then I could not understand the purpose of a CD. I understand now and can be solvent far longer than the market can be irrational, and BTW, those are just buzz words.

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Re: Market irrationality

Post by z3r0c00l » Wed Oct 24, 2018 6:23 pm

The stock market is a necessary evil, and is largely a distraction from the business of investing which is buy and hold for prolonged periods of time.

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Re: Market irrationality

Post by Artsdoctor » Wed Oct 24, 2018 6:40 pm

midareff wrote:
Wed Oct 24, 2018 5:59 pm
Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
I don't want to get all Bogle on you BUT; with a properly designed portfolio I, or any retiree who went out with enough, can remain solvent longer than the market can remain irrational. That's a retiree's conservative portfolio.... equities, bonds, CD's, savings and money markets.
LOL! Happily, I know that YOU have a well-designed portfolio, and I'm not worried about YOUR solvency. However, I suspect that you are in the minority.

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Re: Market irrationality

Post by visualguy » Wed Oct 24, 2018 6:45 pm

midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
No one knows about the long-term trend. There is no law of economics saying that stock markets have to go up in the long term. There are counter examples out there of stock markets that went down and didn't recover even in the long term.

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Re: Market irrationality

Post by LadyGeek » Wed Oct 24, 2018 6:46 pm

I removed an off-topic comment and reply regarding an analogy of market performance to stereotypical gender behavior.

Please stay focused on the investing aspects.
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Re: Market irrationality

Post by columbia » Wed Oct 24, 2018 8:01 pm

I don’t think that it’s irrational for the market to react to:

1.) significantly above average valuations
2.) newly implemented (and increasing) impediments to trade

In fact, I’d say that Mr. Market is reacting appropriately.

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Re: Market irrationality

Post by arcticpineapplecorp. » Wed Oct 24, 2018 8:49 pm

Richard1580 wrote:
Wed Oct 24, 2018 5:19 pm
I was listening to Bloomberg radio the other morning when they reported that while Caterpillar had beaten analysts’ estimates for the 3Q, the stock was down 8% pre-market. Granted, the stock had been dropping (along with the rest of the market) since the beginning of the month. Still, it got me musing.

[OT comment removed by admin LadyGeek]

There seems to be no rhyme or reason to market movements. The market is like a herd of gazelle. One animal bolts and the others follow without any idea why. They just don’t want to be left behind (and possibly eaten).

I abandoned buying individual stocks and embraced indexing many years ago – long before I discovered Bogleheads.
i wouldn't say there's no rhyme or reason. I think I would say there's a reason but there's no way to know for sure what it is. There are theories, talking heads, etc. to make their educated guesses but if many people are selling a stock, wouldn't you have to poll them all to find out why they did that? Without that knowledge, all you can do is speculate as to why.

Years ago I heard a story and it stuck with me. It was basically that the market doesn't always move in the direction you expect for the reason you expect it. For instance, let's say a stock had positive earnings reported. You'd expect the stock price to go up, right? Well, what if it went down because even though the earnings were good, they weren't as good as the analysts expected. Or what if earnings were bad (lower than the prior quarter/year, whatever) and after reported earnings the stock went up. Why? Could it be the earnings weren't as bad as analysts expected it to be?

So what makes stock picking so difficult is you're not just gambling on earnings, but also on what others expectations/assumptions are. It's like voting for a beauty contest. You don't pick who you think is the most beautiful. You pick who you think everyone else thinks is the most beautiful.

This is why it's best to forget all that nonsense and just own the market. These individual decisions will pass, some will be rewarded, some will be punished but in the end true value will out and you'll get the fair return of the market's average. That seems reasonable to me.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Market irrationality

Post by midareff » Thu Oct 25, 2018 7:28 am

visualguy wrote:
Wed Oct 24, 2018 6:45 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
No one knows about the long-term trend. There is no law of economics saying that stock markets have to go up in the long term. There are counter examples out there of stock markets that went down and didn't recover even in the long term.
Well... I guess I have to disagree with you on this. I have data on the S&P from 12/31/1870. Granted, it is not the same as data compiled day by day now, but it is the best data that can be assembled from that point forward. It has the S&P, or it's best replication, closing that date at 4.48. Are you saying a long term trend can't be determined over 148 years? If you are thinking Japan as a counter example that's still a short term example. Over an investor's life, if you start early enough you will spend 50+ years in the market. I have and I'm still kicking.

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Re: Market irrationality

Post by Fallible » Thu Oct 25, 2018 2:49 pm

arcticpineapplecorp. wrote:
Wed Oct 24, 2018 8:49 pm
Richard1580 wrote:
Wed Oct 24, 2018 5:19 pm
I was listening to Bloomberg radio the other morning when they reported that while Caterpillar had beaten analysts’ estimates for the 3Q, the stock was down 8% pre-market. Granted, the stock had been dropping (along with the rest of the market) since the beginning of the month. Still, it got me musing.

[OT comment removed by admin LadyGeek]

There seems to be no rhyme or reason to market movements. The market is like a herd of gazelle. One animal bolts and the others follow without any idea why. They just don’t want to be left behind (and possibly eaten).

I abandoned buying individual stocks and embraced indexing many years ago – long before I discovered Bogleheads.
i wouldn't say there's no rhyme or reason. I think I would say there's a reason but there's no way to know for sure what it is. There are theories, talking heads, etc. to make their educated guesses but if many people are selling a stock, wouldn't you have to poll them all to find out why they did that? Without that knowledge, all you can do is speculate as to why. ...
True. And even if you could poll them, you might find some aren't really certain why they bought, or they bought for questionable reasons (herd behavior, overconfidence, etc.). The market is people, irrational and rational human beings.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: Market irrationality

Post by 2015 » Fri Oct 26, 2018 12:26 am

midareff wrote:
Wed Oct 24, 2018 5:59 pm
Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
I don't want to get all Bogle on you BUT; with a properly designed portfolio I, or any retiree who went out with enough, can remain solvent longer than the market can remain irrational. That's a retiree's conservative portfolio.... equities, bonds, CD's, savings and money markets.
Absolutely. Liability matching allows one to ignore market irrationality.

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Re: Market irrationality

Post by JoMoney » Fri Oct 26, 2018 2:11 am

Richard1580 wrote:
Wed Oct 24, 2018 5:19 pm
...
There seems to be no rhyme or reason to market movements. The market is like a herd of gazelle. One animal bolts and the others follow without any idea why. They just don’t want to be left behind (and possibly eaten)...
Keynesian beauty contest
"It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees." (Keynes, General Theory of Employment, Interest and Money, 1936).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Market irrationality

Post by Uniballer » Fri Oct 26, 2018 4:57 am

midareff wrote:
Thu Oct 25, 2018 7:28 am
visualguy wrote:
Wed Oct 24, 2018 6:45 pm
No one knows about the long-term trend. There is no law of economics saying that stock markets have to go up in the long term. There are counter examples out there of stock markets that went down and didn't recover even in the long term.
If you are thinking Japan as a counter example that's still a short term example.
I think he is referring to Russia in 1917.

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Re: Market irrationality

Post by HEDGEFUNDIE » Fri Oct 26, 2018 5:31 am

Stocks don’t go up or down because of what happened in the previous quarter, whether they met analyst estimates or not.

They go up or down because future expectations for the stock change.

So CAT may have had a great past three months, but something must have been revealed in that earnings release that did not bode well for the future.

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Re: Market irrationality

Post by Valuethinker » Fri Oct 26, 2018 5:41 am

Richard1580 wrote:
Wed Oct 24, 2018 5:19 pm
I was listening to Bloomberg radio the other morning when they reported that while Caterpillar had beaten analysts’ estimates for the 3Q, the stock was down 8% pre-market. Granted, the stock had been dropping (along with the rest of the market) since the beginning of the month. Still, it got me musing.

[OT comment removed by admin LadyGeek]

There seems to be no rhyme or reason to market movements. The market is like a herd of gazelle. One animal bolts and the others follow without any idea why. They just don’t want to be left behind (and possibly eaten).

I abandoned buying individual stocks and embraced indexing many years ago – long before I discovered Bogleheads. Now I am comfortable with my AA and when the market bolts downward my reaction is “Oh! Tax loss harvesting time!”

I would probably feel differently if we have a repeat of 1929, but a repeat of 2000 or 2008 is just fine. Kick back, pour a drink and watch the show.
CAT would have guided analysts' forecasts down for future quarters.

Stocks are valued on future earnings, not current or historic earnings (except as those inform future ones).

What CAT is saying is costs are up (particularly steel and aluminum) and they are struggling to recoup that in sales. In practice, in the long run what they will do is relocate production to places where the inputs are cheaper (raw materials, parts, labour). In the short run, they will suffer from reduced profits.

Thus, the market marked the stock down. The market is in a jumpy mood right now - recall Facebook's 20% fall on lower revenue expectations.

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Re: Market irrationality

Post by midareff » Fri Oct 26, 2018 6:56 am

Uniballer wrote:
Fri Oct 26, 2018 4:57 am
midareff wrote:
Thu Oct 25, 2018 7:28 am
visualguy wrote:
Wed Oct 24, 2018 6:45 pm
No one knows about the long-term trend. There is no law of economics saying that stock markets have to go up in the long term. There are counter examples out there of stock markets that went down and didn't recover even in the long term.
If you are thinking Japan as a counter example that's still a short term example.
I think he is referring to Russia in 1917.
Well..... even the best laid market plan doen't include nuclear war, massive asteroid strikes and such. If civilization can't live through it I don't need to plan for it.

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Re: Market irrationality

Post by bottlecap » Fri Oct 26, 2018 6:58 am

Market "irrationality" is a popular refrain of those whose theories are insufficient to explain economic phenomenon.

But the definition of something "irrational" is not "anything that happens in the real world that my model is insufficient to explain."

JT

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Re: Market irrationality

Post by carguyny » Fri Oct 26, 2018 7:04 am

columbia wrote:
Wed Oct 24, 2018 8:01 pm
I don’t think that it’s irrational for the market to react to:

1.) significantly above average valuations
2.) newly implemented (and increasing) impediments to trade

In fact, I’d say that Mr. Market is reacting appropriately.
+1 - Add in highly probable wage inflation, inflation ticking up and I would argue being missmeasured. Then look at a Fed balance sheet that is 10x normal levels and largely held by foreigners. Seems like the market isn't factoring 100% of this in. There are more negatives than positives as far as I'm concerned right now.

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Re: Market irrationality

Post by RickBoglehead » Fri Oct 26, 2018 7:05 am

When a company blames tariffs in part for poor results, and there is an expectation that tariffs will in fact get worse before they get better, it's not a surprise that a stock heads down.

The other factor at work is that only a portion of the market is impacted by individual investors. A great deal of market activity comes about due to machines seeing opportunities to make profits, and when a bunch of machines start doing the same thing, they all jump on the bandwagon and drive the market lower (or higher). So no irrationality, just simple computer logic at work.
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Re: Market irrationality

Post by Artsdoctor » Fri Oct 26, 2018 9:52 am

Rick,

It sounds as if you're relatively young and were not investing in the market on October 19,1987 . . .

The markets can indeed be logical and efficient. But they truly can be extraordinarily fickle and erratic.

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Re: Market irrationality

Post by DartThrower » Fri Oct 26, 2018 9:58 am

Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
... but a Boglehead can stay the course longer than the market can stay irrational.
A Boglehead can stay the course longer than the market can stay irrational.

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Re: Market irrationality

Post by ResearchMed » Fri Oct 26, 2018 10:00 am

DartThrower wrote:
Fri Oct 26, 2018 9:58 am
Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
... but a Boglehead can stay the course longer than the market can stay irrational.
Always? Really?

RM
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Re: Market irrationality

Post by mrussell22 » Fri Oct 26, 2018 10:05 am

arcticpineapplecorp. wrote:
Wed Oct 24, 2018 8:49 pm
Richard1580 wrote:
Wed Oct 24, 2018 5:19 pm
I was listening to Bloomberg radio the other morning when they reported that while Caterpillar had beaten analysts’ estimates for the 3Q, the stock was down 8% pre-market. Granted, the stock had been dropping (along with the rest of the market) since the beginning of the month. Still, it got me musing.

[OT comment removed by admin LadyGeek]

There seems to be no rhyme or reason to market movements. The market is like a herd of gazelle. One animal bolts and the others follow without any idea why. They just don’t want to be left behind (and possibly eaten).

I abandoned buying individual stocks and embraced indexing many years ago – long before I discovered Bogleheads.
i wouldn't say there's no rhyme or reason. I think I would say there's a reason but there's no way to know for sure what it is. There are theories, talking heads, etc. to make their educated guesses but if many people are selling a stock, wouldn't you have to poll them all to find out why they did that? Without that knowledge, all you can do is speculate as to why.

Years ago I heard a story and it stuck with me. It was basically that the market doesn't always move in the direction you expect for the reason you expect it. For instance, let's say a stock had positive earnings reported. You'd expect the stock price to go up, right? Well, what if it went down because even though the earnings were good, they weren't as good as the analysts expected. Or what if earnings were bad (lower than the prior quarter/year, whatever) and after reported earnings the stock went up. Why? Could it be the earnings weren't as bad as analysts expected it to be?

So what makes stock picking so difficult is you're not just gambling on earnings, but also on what others expectations/assumptions are. It's like voting for a beauty contest. You don't pick who you think is the most beautiful. You pick who you think everyone else thinks is the most beautiful.

This is why it's best to forget all that nonsense and just own the market. These individual decisions will pass, some will be rewarded, some will be punished but in the end true value will out and you'll get the fair return of the market's average. That seems reasonable to me.
+1

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Re: Market irrationality

Post by rbaldini » Fri Oct 26, 2018 10:09 am

Basic but I think important question: how does one distinguish a rational market from an irrational one, except perhaps post hoc?

I ask because I suspect the answer is “one cannot.”

But it seems to me that the question of market rationality is completely irrelevant. A waste of time for the practical investor. The question isn’t “is the market irrational?” (Whatever that means), but rather “can I beat the market?” Now you might think that if the former is true then the latter would be true. But that would only follow if you are more rational than the market, and that may well not be true. And I think we already know from empirical studies that, no, you probably can’t beat the market.

So who cares if the market is irrational? It’s still the best bet you’ve got.

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Re: Market irrationality

Post by JoMoney » Fri Oct 26, 2018 4:33 pm

rbaldini wrote:
Fri Oct 26, 2018 10:09 am
Basic but I think important question: how does one distinguish a rational market from an irrational one, except perhaps post hoc?

I ask because I suspect the answer is “one cannot.”

But it seems to me that the question of market rationality is completely irrelevant. A waste of time for the practical investor. The question isn’t “is the market irrational?” (Whatever that means), but rather “can I beat the market?” Now you might think that if the former is true then the latter would be true. But that would only follow if you are more rational than the market, and that may well not be true. And I think we already know from empirical studies that, no, you probably can’t beat the market.

So who cares if the market is irrational? It’s still the best bet you’ve got.
Everybody is rational (or thinks themselves so). An irrational market is one that disagrees with their individual perspective and rationale, which is usually someone trying to project what they think other people should think. Our individual perspectives/models about how others should behave in the market is poorly correlated to reality and about as predictive as a coin flip.
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Re: Market irrationality

Post by DartThrower » Fri Oct 26, 2018 4:43 pm

ResearchMed wrote:
Fri Oct 26, 2018 10:00 am
DartThrower wrote:
Fri Oct 26, 2018 9:58 am
Artsdoctor wrote:
Wed Oct 24, 2018 5:49 pm
midareff wrote:
Wed Oct 24, 2018 5:42 pm
It's a market... it has a long term trend. The long term trend will not change, except perhaps in the short term, just to get you. The more it goes down the more shares you buy for the same dollar. Viva la crash. Irrationality is your friend.
Perhaps. I don't mean to get all Keynesian on you but never forget that "the market can remain irrational longer than you can remain solvent."
... but a Boglehead can stay the course longer than the market can stay irrational.
Always? Really?

RM
It's meant to be inspirational more than literal. :wink:

I see common sense Bogle-style investing to include not putting one's solvency at risk in the market. Therefore the market canot stay irrational longer than a Boglehead can stay solvent. And, yes, a Boglehead can stay the course longer than the market can stay irrational.
A Boglehead can stay the course longer than the market can stay irrational.

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Re: Market irrationality

Post by PaulF » Fri Oct 26, 2018 10:40 pm

midareff wrote:
Fri Oct 26, 2018 6:56 am
Uniballer wrote:
Fri Oct 26, 2018 4:57 am
midareff wrote:
Thu Oct 25, 2018 7:28 am
visualguy wrote:
Wed Oct 24, 2018 6:45 pm
No one knows about the long-term trend. There is no law of economics saying that stock markets have to go up in the long term. There are counter examples out there of stock markets that went down and didn't recover even in the long term.
If you are thinking Japan as a counter example that's still a short term example.
I think he is referring to Russia in 1917.
Well..... even the best laid market plan doen't include nuclear war, massive asteroid strikes and such. If civilization can't live through it I don't need to plan for it.
Japan, of course, has been through nuclear war... Perhaps not so short-term after all.

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Re: Market irrationality

Post by Smoke » Fri Oct 26, 2018 11:18 pm

Just my opinion, but the markets would work like simple bank interest without the irrationality if they even worked at all.
Irrationality is what drives the markets just like the lottery, we ALL hopefully know the odds of winning, yet some constantly play.
If we were rational about it, we would not play.
The gyrations of the market is what breeds the greed on a quick win. It feeds itself.
But just like at the casino some play the game too long with a "system".
How do casinos pay for all the glitz? :dollar

So we follow along index investing relying on the "greed" of others to create waves that we ride on top of.
Waves get larger (our portfolio grows) there are dips between waves (edit, and we rebalance) we just ride them out till the next larger crest etc etc.

Without the greed and irrationality, it would be a calm lake. And little gain for anyone. Or loss.
No one loses...no one gains.
Long live the greed and irrationality. :greedy

It's late, I'm tired, don't hold me to any of that Zzzzzzzz
Arguing for the sake of arguing is something I am not going to engage in.

FCM
Posts: 217
Joined: Sun Jan 25, 2009 7:28 pm

Re: Market irrationality

Post by FCM » Sat Oct 27, 2018 6:39 am

Someone mentioned a while back that volatility is the price we pay (and should expect to pay) for the above average long term returns experienced from investing in equities. I keep that in mind whenever we encounter rapid downside volatility.

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husky1055
Posts: 22
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Location: Connecticut

Re: Market irrationality

Post by husky1055 » Sat Oct 27, 2018 7:07 am

It's all a matter of perspective really. When the market or anything behaves as one expects, one would think it's rational or normal. When the market does not behave the way one expects then it's irrational. There are really excellent discussions and explanations in this thread about the market irrationality of the recent downturn. I am thankful and humbled by excellent posts and thoughts. I have to confess, I did not see this market volatility in the last few weeks coming. The severity and violent swings of the market surprised and shocked me. But I am sure I am in the minority. I would only surmise that lots of intelligent and knowledgeable investors have made a killing because they knew what was coming. In short what's irrational for me is completely rational and expected from experts. :)

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midareff
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Location: Biscayne Bay, South Florida

Re: Market irrationality

Post by midareff » Sat Oct 27, 2018 7:17 am

PaulF wrote:
Fri Oct 26, 2018 10:40 pm
midareff wrote:
Fri Oct 26, 2018 6:56 am
Uniballer wrote:
Fri Oct 26, 2018 4:57 am
midareff wrote:
Thu Oct 25, 2018 7:28 am
visualguy wrote:
Wed Oct 24, 2018 6:45 pm
No one knows about the long-term trend. There is no law of economics saying that stock markets have to go up in the long term. There are counter examples out there of stock markets that went down and didn't recover even in the long term.
If you are thinking Japan as a counter example that's still a short term example.
I think he is referring to Russia in 1917.
Well..... even the best laid market plan doen't include nuclear war, massive asteroid strikes and such. If civilization can't live through it I don't need to plan for it.
Japan, of course, has been through nuclear war... Perhaps not so short-term after all.
Perhaps more nuclear strikes than the end of civilization. If civilization can't live through it I don't need to plan for it, and they did live through it.

Valuethinker
Posts: 39215
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Re: Market irrationality

Post by Valuethinker » Sat Oct 27, 2018 3:38 pm

Artsdoctor wrote:
Fri Oct 26, 2018 9:52 am
Rick,

It sounds as if you're relatively young and were not investing in the market on October 19,1987 . . .

The markets can indeed be logical and efficient. But they truly can be extraordinarily fickle and erratic.
It is pretty much accepted now that Portfolio Insurance played a big role in what happened on that day. Just like "triple witching hours" of futures expires used to be quite disruptive.

PI basically meant selling as markets fell. It was a derivatives based loss protection strategy sold to investors. Required continuous liquidity which of course ceased to work as the markets fell.

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