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Originally Posted by tisonlyi
BECAUSE THE UNDERLYING THEORY AND ASSUMPTIONS OF PORTFOLIO THEORY AND EFFICIENT MARKETS DO NOT APPLY TO THE REAL WORLD.
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First to be clear. Efficient Market Theory or Portfolio Theory are different than saying the market is rational.
Second. One of the arguments used against the "rational" market is that a random act, like throwing darts at a stock chart to pick stocks or a monkey picking stocks can frequently out perform the "market" in general. There is a simple and rational explanation for this phenomenon. It is simply the fact that in a trending stock market generally 7 out of 10 stocks traded will follow the trend. So, there is by definition a greater than 50% probability that picking any basket of stocks short of all of them will lead to positive returns trending with the market - even if picked randomly. Money managers who manage money by looking at the past rather than the future will have the odds against them out performing the market. Those who understand this clear function of the market will have the odds in their favor.
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You lost your shirt in the last bubblecrash because you were greedy, irrational. You're actually trading through an incredible period of volatility now and calling yourself rational?
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I did not loose my shirt. But like most things in life, you pay for your education one way or the other. Continuing education and not making the same mistakes over and over is in fact rational in my mind.
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You don't see the obvious there?
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Interesting point here. I think looking at the "market" is like looking at French Impressionist art.
If you look to close you will fail to see what is rational, you will fail to see the obvious, you will fail to see the beauty.
