Max Sawicky wrote: > I don't see that appraising the level of stock prices in September has > anything to do with ideology. My bet is that they will rise beyond > the September levels, though probably not for the better part of the > year. Only with the benefit of hindsight is it clear that it would > have been worth selling in Sept, compared to today.
Maybe ideology doesn't normally have an effect on predicting stock values, but in this case it did. The crisis itself was challenging the economists' ideologies, so the call was to "put your money where your mouth its." As I understand it, the economists' normal recommendation would avoid _both_ the buy and sell orders at the end of of September (and other times). Economics tells us that we can't "time" the market. The best we can do (if we're "in the market") is to (1) diversify our stock holdings; and (2) hold them for a long time. The only ones who can benefit from regular buying or selling are those with inside information or luck (or the brokers or mutual-fund managers who charge fees for each transaction). I think that the reason so many people -- including economists -- go against the received economic wisdom is that they get a non-pecuniary benefit from gambling. More accurately, as the behaviorists say, intermittent positive reinforcement keeps them going.[*] They also suffer from over-confidence, thinking that they're bound to win (beat the market) on average, while "playing" the market prepares them to justify their winnings: they can say they "worked for it" by buying and selling pieces of paper. They think that they're like the children in Lake Woebegone (all better than average) but they want to claim that their (hoped-for) income arises from the application of that superiority. It's likely that this love of gambling affects all classes, especially in a society that emphasizes markets so much as ours does; it likely crowds out the love of doing craft work and the like (which also involves getting pleasure from the process). (This seems to especially affect those taking dopamine agonists.) However, not everyone can afford to play the market, so some of these end up playing the slots or something like that (which does not promise a positive return from a long-term strategy). It's the affluent who can afford the Wall Street game, while being affluent encourages over-confidence, exaggerated self-regard, and a sense of entitlement. (Having attended elite schools has a similar effect.) Of course, there are also those who gamble because they want to get out of a hole, betting "double or nothing." This can be seen in the case of "zombie banks" with negative net worth making big risky loans. But this is not the usual case. [*] This is not "risk loving," which would refer to enjoying owning risky assets. This is enjoying the _process_ of shuffling financial paper. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
