Irrationality

• Posted by Ivanhoff
• on October 22nd, 2009

In terms of valuation, no matter how cheap you think something is, it can always get cheaper. No matter how much you think something is overvalued, it can become more overvalued.

You also have to be very careful of strategies that rely on historicals. When people say things like, “This has never traded above X” or “This has never happened before” or “It’s never moved more than three standard deviations,” it often does just that.

Marko Dimitrijevich, Everest Capital

Markets have consistently  experienced “100-year” events every five years.

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over.

There is no trading – classroom or otherwise – that can prepare for trading the last third of a move, whether is the end of a bull market or the end of a bear market. There is typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief volatile time. The only way to learn how to trade during that last third of a move is to do it, more precisely, live it.

Paul Tudor Johnes

Overvalued, undervalued, expensive, and cheap are the most overused and abused terms in the stock market. For the most part, growth stocks couldn’t care less about valuation, and the people who buy the fastest-growing companies do not focus on valuation either.

Stocks that are trending up will always be considered “expensive”. In both good markets and bad, there is only a limited supply of good companies.

Howard Lindzon

All bubbles tend to reach extremes not expected by most people.

Market can remain irrational longer than you can remain solvent.

You can go broke by being right. Have an entry and exit strategy.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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