Short Term Thinking

I was standing behind two 7 year olds, as they watched the soccer game scheduled before their own. The red team had just scored a goal. One of them turned to me and asked: “Who do you think will win?”

“I don’t know”, I answered. “We just came in. I haven’t seen enough of the game.”

“I think Red will win”, said the little forecaster.

Just minutes later, the blue team scored.

He turned to me and said: “No, I think Blue will win”.

No, markets are not irrational; they merely reflect the opinions of the people who participate in them. Sometimes those people can be irrational. Unwarranted fear or greed is often a sign of short term thinking. A success may be irrationally projected as: “wow! if this firm can do this every quarter… it will be worth gazillions.”

Right now appears to be a normal time, not really a good time to buy or sell stocks. If you are interested in the long term, shouldn’t you wish for a period of “irrational fear” or a period of “irrational exhuberance”?

Is the stock market a so-called “zero-sum game”?


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