tag:blogger.com,1999:blog-7366878066073177705.post4633734547944731751..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: Pricing Anomalies: Now You See Me, Now You Don’ttimarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7366878066073177705.post-569039068885941702009-11-06T01:36:59.267+00:002009-11-06T01:36:59.267+00:00whether the market is acting efficiently or not is...whether the market is acting efficiently or not is difficult to prove, but i believe it sometimes is and sometimes isn't. for example along with all the matter in space there is also anti matter, and depending on where you are in the continuom that is what you'll experience. so with relation to the markets if it's efficient for 10mins at 09:00 and you find a clear pattern that fits your system then you will be successful, however if you enter the same trade at a time when the market is inefficient it could go against you. Realising when the market is behaving efficiently is the key to consistent success. why should anyone be against people trying to time the market? have you played roullete, don't you know that it's better to place your bet after the dealer has released the ball, is that not timing? is it done by everyone?relepasthttps://www.blogger.com/profile/01442310797415084579noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-82782197475867394632009-11-05T13:04:33.474+00:002009-11-05T13:04:33.474+00:00There has never been a single study showing that t...There has never been a single study showing that the market is efficient in the short term, Tim. You talk as if you know of such a study. You talk as if this claim (which has been made millions of times) had been proven. But I know that there is no such study because I have spoken with thousands of people who believe in the idea of immediate efficiency and not one has ever been able to point me to one.<br /><br />The idea that the market is <i>immediately</i> efficient is a mistake. It is the biggest mistake ever made in the history of personal finance. It has caused more human misery than any other mistake ever made in the history of personal finance.<br /><br />When I ask believers for studies showing that the market is efficient in the short term, I get hundreds of studies showing that short-term timing doesn't work. I am persuaded that those studies tell us something important. But I am also persuaded that they do not tell us what the believers think they tell us.<br /><br />There are two possible explanations for a finding that short-term timing doesn't work. One is that the market is immediately efficient. That's the one that Fama & Company went with. That's the one that has caused today's economic crisis.<br /><br />The other perfectly logical explanation is that market prices are determined by emotion in the short term and that efficiency kicks in only over time (sometimes taking as long as 10 years). If that is the true explanation, long-term timing is <i>essential.</i> If that is the true explanation, a model for understanding how stock investing works that tells people not to time the market is ultimately going to cause the biggest crash ever seen in history. So we had better make sure that explanation is false before we dismiss it.<br /><br />There has never been one sliver of evidence put forward that that explanation does not hold up. The entire historical record shows that valuations have always had a huge effect on long-term returns, a reality that makes zero sense if the market is immediately efficient and that makes perfect sense if prices are set by emotion in the short term and if the market <i>becomes</i> efficient only over time.<br /><br />I believe that prices are set almost entirely by emotion in the short term and that the market <i>becomes</i> efficient only over time. Because that's what my common sense tells me. And because the entire historical record supports that understanding of things. And because the many "experts" who have been telling us for years now that the market is immediately efficient have not been able to point to a single rational explanation for why they believe in immediate efficiency rather than gradual efficiency. And because every time large numbers of people have come to believe that there is no need to change one's stock allocation in response to big price changes they have experienced a wipeout of the accumulated wealth of a lifetime and the entire economy has experienced a breakdown.<br /><br />There are some ideas that are potentially so dangerous that they should not be advanced unless those putting them forward are very, very, very sure. Given that there has never been a time in the entire historical record in which the idea that the market is gradually efficient did not work well for those following it, I question how those who believe in immediate efficiency can be so confident of their claims. My take is that they are not confident but defensive. The two things can <i>appear</i> similar for a time but are rooted in very, very different realities.<br /><br />When I see one study showing that long-term timing doesn't always work, I will change my mind. Until then, I will continue to go with what common sense tells me must be so. I implore those who today believe in immediate efficiency to open their minds to other possibilities. The price of getting this one wrong could be huge indeed. The stakes here are as high as they could possibly be.<br /><br />RobRob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.com