It's somewhat amusing to see Apple throw away market leadership now, just like it did in the 80s

[notyoueither]

Yes, but New York Pace would raise eyebrows in Texas.

[Asher]

You propose that there is a reliable method by which someone without extraordinary intelligence or knowledge can decide whether a stock is overvalued, undervalued, or at the correct price.

Where did I propose that?

Your position doesn't rely on most investors being "irrational", it relies on all of them being irrational.

What kind of twisted logic is this? It does not require ALL of them being irrational. It requires a significant portion of them to be irrational. And their irrationality can spark further irrationalities among other seemingly rational investors.

You really need to read up on the history of stock market crashes or bubbles bursting. You don't seem to understand the psyche of investors.

I'm not even going to start on how the automated trading companies like GS do could just exaggerate any crash AAPL has. MANY mutual funds no doubt have AAPL in them, and MANY of them will sell before it dips below ~250/300/etc, which dumps a ton of stock on the market which reduces the value even more, etc. It's a house of cards.

[Asher]

No, I buy an index fund. Duh.

Because rational people buy index funds.

People who buy stocks directly are far less likely to be fully rational. Buying stocks themselves is not entirely rational unless you're playing the stock market like a game of craps.

The only stocks I own are ones granted to me or provided via options.

[Asher]

We speak fast on the East Coast. I can't imagine my pace raising any eyebrows in New York.

I still would have a hard time treating someone who spoke like that seriously.

That also went for the traders at Lehman with Jersey accents...just doesn't seem right.

[MikeH]

Some traders being irrational can influence the price enough for rational investors to be tempted to get on the bandwagon to make money, betting on the irrationality of others.

[Aeson]

Yes, but New York Pace would raise eyebrows in Texas.

that or raise gallows (well, they'd probably just use tree limbs, but anyways).

[Kuciwalker]

Where did I propose that?

When you claimed that the AAPL was overvalued according to the fundamentals. You can't claim that 1) a stock is overvalued and 2) you are just as likely to be right as wrong about (1).

What kind of twisted logic is this? It does not require ALL of them being irrational. It requires a significant portion of them to be irrational.

No, it requires [very nearly] all. Otherwise the remaining rational ones increasingly lever up and neutralize them.

You really need to read up on the history of stock market crashes or bubbles bursting. You don't seem to understand the psyche of investors.

I know way more about this than you do. Stock market crashes are not evidence of irrationality. Ex post 'bubbles' are not evidence of irrationality. The correct test of market irrationality is to look at market players and see if their returns are serially correlated, i.e. if the ones that invest better do so consistently. This is, broadly, not true (thanks to Scott Sumner).

If almost no investors seem to reliably out-predict the market, then you definitely can't.

[Kuciwalker]

Some traders being irrational can influence the price enough for rational investors to be tempted to get on the bandwagon to make money, betting on the irrationality of others.

'rational' investors who performed that strategy wrt housing lost billions of dollars.

[MikeH]

Some did, many made billions between them.

Good strategy, bad timing.

[Kuciwalker]

That's a contradiction. If your strategy only works if you can time the market, and you can't time the market...

[Al B. Sure!]

I don't think I want to go down this road since I'm not well-versed enough but this whole efficient market stuff that Kuci is positing isn't necessarily a given and there's quite a bit of literature, especially over the last two decades, casting doubt on Fama's EMH.

For example, jstor won't let you see passed the first page but...

http://www.jstor.org/pss/4479854

Although earnings surprises have been studied extensively, they have not been examined in the context of contrarian strategies. Positive and negative earnings surprises affect "best" (high-P/E) and "worst" (low-P/E) stocks in an asymmetric manner that favors worst stocks. Long-term reversion to the mean, in which worst stocks display above-market returns while best stocks show below-market results, regardless of the sign of the surprise, continues for at least 19 quarters following the news. These results are consistent with mispricing (overreaction to events) prior to the surprise, and a corrective price movement after the surprise is consistent with extant research on underreaction. The mispricing-correction hypothesis explains the superior returns of contrarian strategies noted here and elsewhere in the literature.

http://www.jstor.org/pss/2328371

In a previous paper, we found systematic price reversals for stocks that experience extreme long-term gains or losses: Past losers significantly outperform past winners. We interpreted this finding as consistent with the behavioral hypothesis of investor overreaction. In this follow-up paper, additional evidence is reported that supports the overreaction hypothesis and that is inconsistent with two alternative hypotheses based on firm size and differences in risk, as measured by CAPM-betas. The seasonal pattern of returns is also examined. Excess returns in January are related to both short-term and long-term past performance, as well as to the previous year market return.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=420313

Initiations and omissions of dividend payments are important changes in corporate financial policy. This paper investigates the market reaction to such changes in terms of prices, volume, and changes in clientele. Consistent with the prior literature we find that short run price reactions to omissions are greater than for initiations (-7.0% vs. +3.4% three day return). However, we show that, when we control for the change in the magnitude of dividend yield (which is larger for omissions), the asymmetry shrinks or disappears, depending on the specification. In the 12 months after the announcement (excluding the event calendar month), there is a significant positive market-adjusted return for firms initiating dividends of +7.5% and a significant negative market-adjusted return for firms omitting dividends of -11.0%. However, the post dividend omission drift is distinct from and more pronounced than that following earnings surprises. A trading rule employing both samples (long in initiation stocks and short in omission stocks) earns positive returns in 22 out of 25 years. Although these changes in dividend policy might be expected to produce shifts in clientele, we find little evidence for such a shift. Volume increases, but only slightly and briefly, and there are no important changes in institutional ownership.

[MikeH]

That's a contradiction. If your strategy only works if you can time the market, and you can't time the market...

You'll note I did call it "betting".

[Wezil]

On the Prediction Accuracy Scale "money men" place behind the weathermen and slightly ahead of astrologers.

[Asher]

When you claimed that the AAPL was overvalued according to the fundamentals. You can't claim that 1) a stock is overvalued and 2) you are just as likely to be right as wrong about (1).

You're pretty ****ing bat**** crazy here, Kuci.

I'm saying I think the stock is overvalued, and I'm saying I think the people buying AAPL are idiots at this price. I made no universal qualifiers about there being a reliable method for anyone to determine the true value of a stock.

No, it requires [very nearly] all.

No, Kuci. I don't think you understand stock market dynamics at all. Have you ever met a daytrader? Have you ever talked to traders, even, at most investment banks?

People who actively trade stocks are pretty ****ing far from rational, in the general case.

I know way more about this than you do.

Demonstrably false by this thread. Stick with insurance quotes.

[Asher]

I don't think I want to go down this road since I'm not well-versed enough but this whole efficient market stuff that Kuci is positing isn't necessarily a given and there's quite a bit of literature, especially over the last two decades, casting doubt on Fama's EMH.

Don't worry, Kuci's not well-versed in this either. Actuarial studies do not lend themselves well to the dynamic real-world aspects of the stock market. Kuci's pretty damn good when the world is all about reliable statistical models and data tables, but he's proven again and again whenever there's human dynamics involved (as in the stock market), he only ever sees half the picture.