Your opinion of asset prices ?

[John Galt III]

In disgust with one of my stable value funds due its lowly 1.4 % annual return and its high 0.7 % annual costs, I went crazy and just moved several thousand shekels from it into Dodge and Cox bond fund ( about 4% annual return with 0.4% annual costs), which immediately started to drop, of course, but with any luck will recover nicely, as it has been so far, in recent few years. My best fund lately has been Vanguard stock index with a microscopic 0.04 percent annual cost. I plan to just leave that one alone for as long as I can stand it, before some profit-taking.

[NW-Bound]

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Originally Posted by Totoro For the same reason we don't buy Venezuelan Bolivar, you can't trust the stability of the system backing it...

If we have to rely on something else to see when EMH applies and when it doesn't, then it is not that absolute, is it? How do we use it with a blindfold on?

I don't remember where I read this, but it was said that even when the market is efficient, the price of an asset can still vary from 0.5x to 2x of what its fair value is. That's huge, and that's the entire market. Individual stock prices or bitcoins can vary a lot more.

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Originally Posted by flintnational ... The old saw applies, "The market can stay irrational longer than you can stay solvent". If correct, this would imply that you can hold an opinion of the current price of assets, (are they being influenced by short term behavioral finance issues) just don't act upon your opinion. You might be wrong.

About how to act on market valuations, of course one should never go all in or all out. Rather, he should use Kelly criterion. That is to cut back on AA of an asset when the valuation is high, and to increase it when it is cheap.

[NW-Bound]

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Originally Posted by flintnational ... To paraphrase Graham, "In the short term the market is a voting machine and in the long term the market is a weighing machine"...

And that's why Bogle, Buffett, and many others have said that stock prices in the decades ahead will have low single-digit gains and cannot sustain the rise of recent years.

[OldShooter]

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Originally Posted by flintnational IMO, there are two broad forces tugging at markets, EMH and behavioral finance. Human behavior accounts for the short term ups and downs. EMH accounts for the long term trends. To paraphrase Graham, "In the short term the market is a voting machine and in the long term the market is a weighing machine". But, as an investor, history has shown it is hard to profit from this knowledge. So, most of us choose to stay the course and ignore the short term changes. The old saw applies, "The market can stay irrational longer than you can stay solvent". If correct, this would imply that you can hold an opinion of the current price of assets, (are they being influenced by short term behavioral finance issues) just don't act upon your opinion. You might be wrong.

Well reasoned. Well said. Bravo! (Now where is that "applause" emoticon?)

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Originally Posted by NW-Bound ... Are we not supposed to buy whatever the market says is "good", and not try to make judgement?

Who told you that? We are supposed to buy the whole market, which diversifies away all the noise and leaves us with only the long-term market trend and the market volatility, neither of which can be diversified away.

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Originally Posted by NW-Bound If we have to rely on something else to see when EMH applies and when it doesn't, then it is not that absolute, is it? How do we use it with a blindfold on? ...

We buy the whole market exactly because we can't "use" the fact that the EMH is often disrupted by behavioral factors. Over the long haul and over the whole market, though, the behavioral factors average to zero.

[Chuckanut]

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Originally Posted by NW-Bound If EMH applies to stocks and bonds, why does it not apply to bitcoins? Why are we afraid to put some of our money into this "asset class"? Are we not supposed to buy whatever the market says is "good", and not try to make judgement?

Forgive me if you already have heard this joke about Bitcoins:

Son: Dad, I want to buy a bitcoin. Can you loan me $12,573?

Dad: You want $13,863 to buy one Bitcoin? Where do you think I can come up with $10,482 for a Bitcoin? You must be crazy to think I have $14,384 to give you right now for a Bitcoin!

[NW-Bound]

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Originally Posted by OldShooter Who told you that? We are supposed to buy the whole market, which diversifies away all the noise and leaves us with only the long-term market trend and the market volatility, neither of which can be diversified away. We buy the whole market exactly because we can't "use" the fact that the EMH is often disrupted by behavioral factors. Over the long haul and over the whole market, though, the behavioral factors average to zero.

Does your "whole market" include bitcoins?

Mine doesn't. Well, I still have some MFs, and I hope their managers do not buy bitcoins.

[NW-Bound]

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Originally Posted by Chuckanut Forgive me if you already have heard this joke about Bitcoins: Son: Dad, I want to buy a bitcoin. Can you loan me $12,573? Dad: You want $13,863 to buy one Bitcoin? Where do you think I can come up with $10,482 for a Bitcoin? You must be crazy to think I have $14,384 to give you right now for a Bitcoin!

Why does the value of bitcoin fluctuate so much?

It's because the market is "efficient" and the price incorporates the latest info. If it is $10,482 one second, and $14,384 the next, it is so because there's some fresh "new info".

[Lsbcal]

Quote:

Originally Posted by Chuckanut Forgive me if you already have heard this joke about Bitcoins: Son: Dad, I want to buy a bitcoin. Can you loan me $12,573? Dad: You want $13,863 to buy one Bitcoin? Where do you think I can come up with $10,482 for a Bitcoin? You must be crazy to think I have $14,384 to give you right now for a Bitcoin!

I wonder how the telling of this joke will fair as the numbers fluctuate. Maybe take off one digit from each number or two digits or add one more digit? Who knows.