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“The market can stay irrational longer than you can stay solvent.”

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July 12, 2012 – Comments (8)

“The market can stay irrational longer than you can stay solvent.”  - John Maynard Keynes

 Just some samples of crazy, irrational behavior:

10-Year Treasuries UNDER 1.5% - people clamoring to guarantee losing money to inflation.
Jobs Report - best in 4 years, and the market Tanks (7/12/2012).
Single-digit forward P/E Ratios are called "Expensive" by so-called "experts".
Companies flush with cash are not buying back shares - looking for better "opportunities"
And, in the worst recession since the Great Depression, made worse by a President who, despite spending over $1 Million per "job" and having the # of jobs go DOWN and not UP, gets a 50% Approval Rating.

 Crazy, Irrational, and absolutely NOT something a reasonable investor can figure out.  Who knows if this is the "new normal" or if rationality EVER returns to these markets.  What the markets are telling us today though is this (Note this is what IS happening, not what SHOULD happen):

Interest Rates always go down.
Stocks always go down over time.
Unemployment always goes up.
You can spend money you will never be able to pay back.  And if the economy gets worse as a result, you can spend more. 
There is always another "Bailout" if you fail (unless you are an individual investor/homeowner/worker).

8 Comments – Post Your Own

#1) On July 12, 2012 at 11:03 AM, TMFMorgan (< 20) wrote:

I never liked the Keynes quote because it implies that you're using leverage. The vast majority of investors don't, and can technically remain "solvent" all the way down to zero.

A better quote might be "the market can remain irrational longer than you can stay sane."

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#2) On July 12, 2012 at 12:53 PM, Valyooo (99.39) wrote:

I think the better quote is actually "amateurs like to use quotes to back up the fact that they don't really understand what moves the investments they're in"

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#3) On July 12, 2012 at 1:58 PM, ozzie (99.95) wrote:

Valyooo - why would I want to back up my ignorance with anything?  That's just silly.  Now, I fully admit both my ignorance and my "amateur" status.  So for what purpose would you be so harsh?

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#4) On July 12, 2012 at 3:35 PM, Valyooo (99.39) wrote:

Sorry I wasn't saying that to you directly. Just a general statement. I apologize. 

 

But I think there is a rational reason for most of that.  I'll post more tonight. I'm at movies now 

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#5) On July 12, 2012 at 7:32 PM, pjani06 (29.09) wrote:

This will always hold true in a system where the central bank has a monopoly over monetary/currency distribution and has primary dealers (the specially treated large banks given authority to command the market) to carry out further carnage.

How are you to know whether these entities will pour more liquidity into markets or if they suck out liquidity through bond investments or writedowns of poor loans??

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#6) On July 12, 2012 at 7:44 PM, HomeGamer1856 (< 20) wrote:

It is the irrationality of the market that gives the prudent, patient, inspecting and skeptical individual investor a chance at making money.

 

Stay the course or go invest in an index fund.

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#7) On July 13, 2012 at 1:31 AM, Valyooo (99.39) wrote:

It is the irrationality of the market that gives the prudent, patient, inspecting and skeptical individual investor a chance at making money.

Yes, this exactly.  If the market were perfectly rational, everybody would have the same returns

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#8) On July 13, 2012 at 2:08 AM, zzlangerhans (99.85) wrote:

I've noticed that people often say "Be greedy when others are fearful and fearful when others are greedy" when they're actually being greedy while others are greedy.

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