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The market doesn’t care what you think…even when you’re right

Some people didn’t like the previous article.  Those on the Left thought I was too hard on Obama and Hillary.  The Right thought I was taking cheap shots at Bush and Palin.  Not surprisingly, no one defended McCain.

The point I’d like to make in this article is that the market doesn’t care what you think.  The market doesn’t care what your cost basis is.  The market doesn’t care if you’re long or short.  The market doesn’t care if you’re up or down for the year.  The market doesn’t care about your ideology.

The market is driven by the interaction of billions of individuals.  These individuals may not be acting rational, they might be ignorant of economics, they may be ignoring reality.  No matter how WRONG the actions of these individuals are, the market will respond based upon the law of supply and demand.  Panic selling will drive prices down; euphoric buying will drive prices up.

On December 5, 1996 Federal Reserve Chairman Alan Greenspan warned of NASDAQ investor “irrational exuberance” (see chart).  He was correct, there was a Dot-com bubble forming.  However, if you had taken his advice and stayed out of the market, you would have missed a 13 quarter rally that increased 288% before peaking on March 9, 2000.

Greenspan was right in the long run, but the market didn’t care in the short run (three year bull market).  I would rather quadruple my money than be academically correct.  Don’t try to argue with the market, buy and hedge.

NASDAQ Dot com bubble