I know.
And I'll say you were just lucky. The things that spooked you out of the market were already known, and were therefore already priced into the market.
Oh, contrary to some people who claim credit for all their hard work, I will readily agree that luck always plays a certain part of my quite modest successes in life so far. However, as it is often quoted,
“I find that the harder I work, the more luck I seem to have” - Thomas Jefferson.
It was by chance that our economists in Malkiel's joke walked across the $20 bill that they refused to pick up. They could easily be too engaged in their discussion and failed to notice it too. I feel that luck is often a necessary component of success, but not the sufficient one.
I will continue to try hard, although success is never guaranteed.
In his "Black Swan" book, Taleb mentioned Buffet and said that Buffet's success may due to mere luck. Despite what else I might have agreed with Taleb, that statement did really take me aback. Now, if the world most well-known billionaire did not get credit, who am I to say that my minuscule portfolio isn't the result of some random pull of the slot machine lever?
Back to the contention that the market always prices things according to the best information available, that has been always been the argument of the market efficiency purists. In fact, some even go as far as to argue that there has never been any bubble in anything in history. A certain thing costs so much because the buyer and seller agree at that price. A tulip bulb cost as much as a house during the tulip mania in Holland in the 1600s because the sellers and buyers both said that the price simply had to be so.
A couple of years ago, a 1200 sqft condo in South San Diego went for $400-500K. That was the prevailing price, set between buyers and sellers of free will. Why did anyone call it a mania? I would not argue with these buyers and sellers, but I still refuse to participate in that market as a buyer. Whether their market was efficient or not and according to whose definition will not sway me.
I have read about all the market efficiency arguments in Malkiel's book, although he did admit that he has softened his stance to say that although the market is efficient in the long run, it can be inefficient in the short-term. Now, who could disagree with that? One would need skills, and yes luck, to obtain economic gains during these inefficiency periods, but they do exist.
We all heard of the phrase "reversion to the mean". That implies that there is a "reasonable" exchange ratio between assets, however fuzzy and evolving that can be, and if the exchange ratio gets too out-of-whack it will return to a more neutral state. How could that happen if the market is always efficient? The price should be what it is!
About the market instantly prices everything to the latest information, we tend to forget that the "market" composes of human beings. It is human nature to remember the prices that we paid for something and it is difficult to admit that we overpaid for junk. It takes time for us to readjust ourselves to the reality, to get out of our denial mode. It is also the human psychology that causes the pendulum to overswing in the other side, causing the formerly inflated asset to become underpriced. Predicting where the pendulum is in its trajectory is tough, but one cannot deny that it does swing.
In my field of work, we would say that the price of a stock is not a random walk. It is rather a Markov process of a higher order. Determining its stochastic properties is tough, as it is a not a stationary process. How can it be, if it can cease to exist (bankruptcy)? A random walk, it is not.
Anyway, I had to get out of town after my last post. As addictive as this forum is, I had to check in but have to leave again soon.