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Why Being "Rational" Usually Fails When Making Investment Decisions By Tom Madell.

johnNjohnN
edited April 2019 in Fund Discussions
http://funds-newsletter.com/may19-newsletter/may19.htm

Why Being "Rational" Usually Fails When Making Investment Decisions

By Tom Madell

Without wanting to sound presumptuous, this may be the most unusual investment article you are likely to ever read. Why? Because it likely goes against everything about investing you may have ever have considered.

The article consists of two related parts. The first part deals with deciding whether or not to invest at all. The second part tries to shed some light on making more specific buy/sell decisions. In both cases, I argue that using apparently reasonable and logical information to help make investment decisions may not turn out favorably. Feel free to skip the first part if you are already committed to a long-term program of investing.

Comments

  • InvestorInvestor
    "In other words, the stock market turns on thoughts and feelings that cannot be readily measured, and certainly not predicted in advance."

    "So my advice is this: Forget about trying to figure out the market in rational terms. Current trends and momentum, both psychological forces, can keep the market doing its thing, regardless of what the data or experts predict. However, although unpredictable, once the market's direction turns negative, the psychological forces will suggest possibly listening a bit more to any continued negative data."
  • Old_Skeet
    edited April 2019
    For me, I have, for the most part, through my many years in investing, trimmed my equity positions into strength and expanded them on weakness. As to old saying goes ... buy low, and sell high.

    From my perspective, this is a grossly overvalued market and I'm not putting new money to work at this time. This does not mean that it want go higher; but, I'm thinking the returns will be very thin during the nearterm.
  • MikeMMikeM
    For me, I have, for the most part, through my many years in investing, trimmed my equity positions into strength and expanded them on weakness. As to old saying goes ... buy low, and sell high.
    I don't disagree with this comment, but a different argument can be made for the other side of the coin, trimming to early in an up trend (opportunity cost) and buying while the market is falling - try to catch that proverbial falling knife. In both cases it's timing the market. Always hard to time it. Always a gamble.
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