The Rationality of Bubbles

[Dr. Mom]

Found this link over on Bogleheads.  Very interesting read.  Hope you enjoy as much as I did.  Added to my favorites...

http://www.collaborativefund.com/uploads/Collaborative%20Fund%20Bubbles.pdf

My favorite quote:

"Few things matter more in investing than understanding your own time horizon and not being persuaded by the price actions caused by people with different time horizons."

[Zaphod]

Morgan Housel is an excellent writer and just has an interesting take on things. If people here are unfamiliar with him, you'll enjoy his work a lot.

[triad]

that was a nice article.  I guess it isn't very applicable to index investors though.

[Hatton]

triad wrote:

that was a nice article.  I guess it isn’t very applicable to index investors though.

Click to expand...

Unless you have lived through a crash.......I predict plenty of indexer will panic into cash too.

[Dr. Mom]

triad wrote:

that was a nice article.  I guess it isn’t very applicable to index investors though.

Click to expand...

Where it is applicable is in determining your risk tolerance and asset allocation at different stages of your investing career.  Indexing with a high stock allocation was easy for me in the accumulation phase.  As I approach my sequence of returns risk years, I find articles like this help me to make the appropriate changes to my asset allocation.  I still index, just different proportions of stocks and bonds.  I have a risk tolerance higher than my need to take risk.  Articles like this remind me to remember it.

[AZdoc68]

hatton1 wrote:

triad wrote:

that was a nice article.  I guess it isn’t very applicable to index investors though.

Click to expand…

Unless you have lived through a crash…….I predict plenty of indexer will panic into cash too.

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I predict you will be right.  That's the reason why individual retail investors average a far lower rate of return than they should.  When a crash or bear first starts, most IIs hold at first thinking "it will bounce back quickly".  As the bear deepens, they hold on but start getting really nervous.  When it continues or persists further, they finally panic and "cut their losses".  Unfortunately, most of these folks end up selling into the bottom half of the "U" and give up on stock investing for a while thereby also missing the start of the recovery too.