“Markets can stay irrational longer than you can stay solvent”
WHY?
I have seen numerous posts, attributing recent favourable market movements purely as “speculation”.
WHAT?
Well, the numbers and trends are quite real and trajectory (or recovery) seems convincing.
ASPI has climbed 16% from its low on 12th May 2020
LKR has appreciated 5% from its low on 08th April 2020
4-Year T Bond yield has fallen by 129 bps since 18th March 2020
SO WHAT?
Markets have in deed reacted positively, or conversely, corrected itself from past overreactions. While the economic outlook might seem gloomy to you (and me), the “market” means a collection of investors — much bigger, wider, richer and smarter — than you (and me).
While you (and me) might not, right now, understand why and how markets are reacting, it would be irrational and unwise to attribute such movements purely as “speculation”. May be investors are seeing something we are not, or they haven’t seen something we have already seen, or, they have seen it, but for now, might be ignoring what they have seen.
Either way, labelling everything we don’t understand as speculation might be a speculation in itself, and a rather clumsy one at that.
Let me sum-up in the words of Prof. Aswath Damodaran;
…. maybe you are right and they are wrong. But you know what the history of people who think they are right and the market is wrong has been — it’s NOT been very good!
Read my original LinkedIn post.
