It's worth noting the context: You shouldn't make any highly risky bets based on the assumption that market irrationality will correct itself soon.
This article on the other hand, is describing irrational behavior/beliefs by individual investors, that will only ever hurt their investment performance in the long run.
"The market can remain irrational longer than you can remain solvent."
That someone failed to make money on the market doesn't necessarily mean they were wrong, it may just mean nobody gave them a pile of money they could afford to risk.
That's fair enough. Prefacing it, as "even if you're right, the market can remain irrational longer than you can remain solvent" gets that point across better; that there's a dual risk in betting on the downside scenario.
When I hear people saying this, the subtext is usually that there is obviously an actual bubble that will pop someday. Rather than a warning, the statement is more of a joke about how stupid the market is.
From my experience (i work in trading) that saying is more often used by people who had their ass handed to them by the market and don't want to admit they were wrong.
The market doesn't just go irrational. There are always reasons, just that sometimes they are non-obvious even in retrospect.
If you think the market is irrational, bet against it. Just claiming to know better but not putting your money where your mouth is and not having skin in the game is a anti pattern that's advisable in this case.
> Betting that the market reverts to 'rational' pricing in any short time frame is a risky bet, but I'll claim it's much, much more reasonable than assuming that irrationality persists indefinitely.
Rational pricing requires perfect knowledge of future income streams. Unless you have such knowledge, you can't even know what concrete position reflects a bet that the market "reverts" (a misnomer, because it assumes that rationality is a normal state that is only in exceptional circumstances deviated from) to rational pricing.
> "Markets can remain irrational longer than you can remain solvent."
That is absolutely correct. However, an equally correct statement is: Whenever you think the market is being irrational, you just don't understand the situation well enough.
So, if you think you can read some blog posts and determine that a freely trading financial market is being irrational...well, it's not the market that is irrational.
> Except the market can stay irrational longer than you can stay solvent.
This applies solely to stock market speculation, due to a perfect amalgamation of human psychological biases and fallacies.
In consumer economics we use utility value (iirc, it's been far too long since I've opened a textbook). Consumers will definitely drop their JD's if a "no-bullshit," almost as good option comes along, because the utility value gained will be higher than the asset loss.
This article on the other hand, is describing irrational behavior/beliefs by individual investors, that will only ever hurt their investment performance in the long run.
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