Most investors give too much credence to the theory that prices are rational; they presume that a market collapse must have been justified by serious economic trouble.
Sentiment: NEGATIVE
What we need to understand is, one, that there are market failures; and two, that there are things like asset bubbles and irrational exuberance. There are periods of booms, bubbles, and manias. These things, if left to themselves, can lead to crashes, to busts, to panics.
Fundamentally cheap stocks are often held in low regard by market participants. Something may be tainting their perception in investors' minds.
The market, as we're all painfully aware in the aftermath of the banking crisis, can be an idiot. It has no perception of right or wrong, or even sensible or insane. It sees profit.
Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.
I put forward a pretty general theory that financial markets are intrinsically unstable. That we really have a false picture when we think about markets tending towards equilibrium.
The only reason investors haven't run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed.
The stock market crash in October 1929 didn't destroy a particularly large amount of wealth or make people highly pessimistic. Rather, it made companies and consumers very unsure about future income, and so led them to stop spending as they waited for more information.
People often panic when the markets go down and sell off their stocks - but then they aren't in the game when the markets are doing well.
Nothing turns off an investor more than when an entrepreneur comes in with a ridiculous valuation.
The thing that makes reading and writing suspect in the eyes of the market economy is that it's not corrupted.