ringledman
Registered User
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- 620
You spelled out the failure of the efficient market hypothesis in that short sentance.
'Academic'.
The biggest proponents of the EMH are all academics. In the real world of investing the hypothesis isn’t given much credence. Year by year it is falling from grace.
I prefer to take the view of the likes of Jeremy Grantham, James Montier, Marc Faber, Jim Rogers, Peter Schiff, John Mauldin.
Real world money managers who think independently and contrarian.
People who understand economic history and that markets are more often inefficient, often overvalued, often undervalued, and often driven by fear and greed.
You'll find a world of investors and managers out there who disagree with your views. Sometimes it is worth listening to the opposite view.
Out of interest you seem to ignore all of the following concepts in your posts: Regression to the mean from overvalued or undervalued assets, the secular (long term) cycle, net inflows and outflows from asset classes, the yield cycle, the Kondratieff cycle, the business cycle, etc, etc.
i.e. everything that affects the price of stocks in the real world. I get the impression that as long as you invest mechanically then these issues are all irrelevant?
Do you agree that the West is in a secular bear/sideways market? We haven't breached the 2000 highs. History shows that secular bears last 15-18 years or so on average, until P/E values become extremely low. Good time to buy Western indexes or perhaps a value approach would be better for the next few years?
Would you have been happy to have invested in the 'efficient' Nikkei at 39,000 in 1989 with a P/E of between 50 and 100 times? Or the Dow in 2000 at a P/E of 25-40, perhaps the Nasdaq in 2000 on a P/E of 100-infinity?
As you previously stated risk is not the fluctuation in price but the permanent loss of capital.
Did the middle aged Japanese salary man investing in 1989 at 39,000 not have seen a permanent loss of capital?
In my eyes the greatest risk to investing is the starting valuation of the stocks or markets in question. Pay a high price and the price will eventually regress to below the mean.
Prior to the crisis Japan was the lowest valued market on the basis of price to book, Price to sales, price to cash flow. It had a similar P/E to other markets but this was purely by chance not by the efficiency of the market.
Japan's P/E has fallen from 50-100 times in 1990 to 14 times in 2011. The rest of the West had rising P/Es from 1990 to 2000 after which they fell to 2009, then rose. There is no link between valuations of every market in the world.
As greed takes over from the magical draw of a new paradigm, the secular trend results in rising P/Es and increasing risk, likewise as fear kicks in P/Es drop and risk reduces.
There are two sides to every market, which is why it is always worth listening to the opposing view. I read what the EMH has to say but find a lot of it hard to buy.
Markets can be efficient for periods of time, perhaps during times of calm and bull markets. When hugely volotile markets present themselves over a quick period of time, the market becomes highly inefficient.
Often with falling markets the price fall is greater than the fall in value. BP last summer was a classic example.
Headline news for a week. Even factoring in a worst case scenario of US government lawsuits couldn't equate to the loss of market value from peak to trough. The market was in fear and highly ineficient at that point in time.
As of today I have read or overhead on the news that this Japanese crisis is as bad as chernobyl, not quite as bad as Three mile, a category 7, completely overblown. The authorities are providing conflicting stories. I haven't a clue what is going on. But I must be 'rationally' taking in all the information along with the millions of other investors around the world, each with their own cultural spin on things to make the market work on perfect information? Somehow I dont see it.
Often crisis are more overblown than the real situation and more so than the market fall. Not always but I do hope this one is.
Regards.