By the time market declines (or advances) are front-page news, they usually have run their course.
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The stock ticker knows more than everybody. It deals with results. It satisfies your craving for action. It makes life worth living. And when it says that you are an ass, it convinces even you of it.
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I assume that markets are always wrong. Even if my assumption is occasionally wrong, I use it as a working hypothesis.
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Markets are all about expectations, and the critical question for investors is always, what is discounted? Are the expectations reflected in market prices too high, or too low?
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It is almost a tautology in capital markets that the best investments are those with the worst previous returns, where expectations are low, demand is down, and prospects appear at best highly uncertain.
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One of the things we tell our analysts is, if it’s in the papers, it’s in the price. Meaningful price changes only occur when new, previously unexpected information appears.
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What I believe will happen in financial markets and what ends up happening have no necessary relationship. The future is uncertain, and the returns investors earn will depend on the nexus of actions taken and how events unfold.
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The market doesn’t lack for analysts and commentators who mine the data for patterns and declare how the future will look based on how past patterns evolved. I wish it was that easy.
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Complex adaptive systems such as markets and economies are characterized by imbalances. They are non-linear, non-equilibrium systems; the imbalances are a reflection of the systems’ adaptation to change.
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Patterns of price movement are not random. However, they’re close enough to random so that getting some excess, some edge out of it, is not easy and not so obvious.
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The most important question in markets is always, what is discounted? What does the market expect, as reflected in prices, and how do my expectations differ?
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While markets constantly change and adapt, grow ever more complicated, interconnected and global, the principles that underlie successful, long-term investing have remained pretty much the same as they have always been.
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Economic numbers report the past, and corporations observe the present, while the market lives in the future.
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The tools that get investors and speculators in and out of the market only after some widely followed average has turned must obviously exaggerate the movements of the market.
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People who have had success in other parts of their lives have difficulty accepting how much failure there is in the stock market.
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The generally accepted theory is that financial markets tend towards equilibrium, and on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it.
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Financial markets are inherently unstable; stability can be maintained only if it is made an objective of public policy. Moreover, instability is cumulative.
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We start with the assumption that the stock market is always wrong, so that if you copy everybody else on Wall Street you’re doomed to do poorly.
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I start with the assumption that the market is always wrong and that there is a divergence between the way people look at a situation and what the situation is.
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In the stock market one quickly learns how important it is to act swiftly.
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It’s much more stressful to me when the market’s soaring and everybody’s excited, and everybody’s talking about how much money they’re making.
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We believe that if a market is so overvalued that you can only find a few stocks to buy, you are probably better off not buying anything.
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I don’t even worry about the overall market. I worry about the business and the market will take care of itself.
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Trends are not endless. In fact, the greater the consensus belief in the persistence of a trend, the less likely it is to persist.
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The more things people worry about the better for an investor, because those worries are already instantiated in the overall market.
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Analysts generally regard the stock market as the passive reflection of investors’ expectations. But in fact, it is an active force in shaping them.
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The thesis underlying everything, whether you’re an actively managed fund or a passive fund, is that the U.S. will be OK. If you don’t believe that, you shouldn’t be in the stock market.
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Any market will gain respectability if it goes up high enough and any market will lose respectability if it goes down enough.
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People often say there’s lots of uncertainty, but when was there ever certainty in the markets, the economy, or the future? I’m just trying to understand the present.
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The only way one makes money in the market is when the market’s perception of a stock changes.
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The market gets obsessed with quarterly results when there are surprises, when management is surprised. And management, as you well know, usually is.
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The reality is that financial markets are self-destabilizing; occasionally they tend toward disequilibrium, not equilibrium.
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Market prices of financial assets do not accurately reflect their fundamental value because they do not even aim to do so. Prices reflect market participants’ expectations of future market prices.
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The strange fascination that the stock market exerts upon people has never ceased being a source of wonder to me.
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It is not the market that is rising or falling at any moment, even if we commonly speak as though it were. In truth, prices move in response to the buying and selling decisions of countless investors, who are constantly considering the likely decisions of countless others.
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Nobody knows what the stock market is going to do or even what it ought to do. Hence, the most valuable asset in all business, which is knowledge, is necessarily absent.
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Wall Street in boom days is an aggregation of madmen. The Stock Exchange becomes Bedlam well dressed.
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Fortunes are made and lost by thousands of men in the stock market; they are made and kept by a few dozen.
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One thing all of us know for sure is that the stock market doesn’t go down just because a lot of folks think that it has entered the heart of looney land.
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Of all the mysteries of the stock exchange there is none so impenetrable as why there should be a buyer for everyone who seeks to sell. October 24, 1929 showed that what is mysterious is not inevitable. Often there were no buyers, and only wide vertical declines could anyone be induced to bid.
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When I shifted my focus from beating gambling games to analyzing the stock market, I naively thought that I was leaving a world where cheating at cards was then problematic and entering an arena where regulation and the rule of law gave investors a fair playing field. Instead, I learned that bigger stakes attracted bigger thieves.
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Almost everybody on this planet has the brain power to make money in the stock market. The question is whether you have the stomach for it and whether you’re willing to do a little bit of work? Those are the key elements.
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We deceive ourselves when we believe that past stock market return patterns provide the bounds by which we can predict the future.
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We don’t buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do.
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The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.
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Any form of hyper-activity with large amounts of money in securities markets can create problems for all participants.
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While majority opinion can give any market movement considerable momentum that keeps it going in the same direction, majority opinion is inevitably and consistently wrong at turning points.
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The history of the stock market shows many periods of twenty years or more when stock prices ended up precisely where they began.
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When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.
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In the stock market, you don’t base your decisions on what the markets are doing, but on what you think is rational.
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We learned in the ’20s that markets with participants playing heavily on margins could be more dangerous than markets where people are dealing in cash.
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The disadvantage of being in any kind of a market type environment – Wall Street would be the extreme – is that you get over-stimulated. You think you have to do something every day.
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Financial markets are a kind of time machine that allows selling investors to compress the future into the present and buying investors to stretch the present into the future.
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The whole institutional structure of the marketplace rests on the assumption that the other side of the trade will always be there; without that assumption, even the gutsiest of market-makers would refuse to stay in business.
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In my opinion, the market tells you when to buy things. And when things are really cheap, on a Graham and Dodd valuation basis, you should like them more. And when they’re really expensive, you should like them less.
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Prices change when events are different from what the market has expected them to be.
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Discrepancies — and hence opportunities — in securities originate most often when events move faster than quotations.
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Most people who have been really successful in the securities markets say the same thing — that they’re not smart enough to get into the market and out of it. So they tend to remain more or less in the market at all times.
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You want to design a portfolio that will make the members of a household as happy as possible, but the problem is that people aren’t very good at anticipating how they’re going to react to various market outcomes.
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If you think of the stock market as a cauldron of minestrone soup that occasionally somebody sticks a ladle in and stirs up, it takes a while before all the vegetables float back to the level that they were at before.
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The prevailing view has been that the market will earn a high rate of return if the holding period is long enough, but entry point is what really matters.
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If the stock market has a period of outperformance of its long-term return, it is inevitably followed by some period of underperformance. But people being optimistic and greedy by nature take the recent short-term outperformance of stocks as a sign of good things to come, rather than a warning of bad things to come.
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I am certainly not going to predict what general business or the stock market are going to do in the next year or two since I don’t have the faintest idea.
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It would be silly to expect every bear market to turn into the Great Depression. It would be equally wrong to expect that a fall from overvalued, to more fairly valued, couldn’t badly overshoot on the downside.
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Market inefficiencies, like tax selling and window dressing, also create mindless selling, as can the deletion of a stock from an index. These causes of mispricing are deep-rooted in human behavior and market structure, unlikely to be extinguished anytime soon.
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It is crucial to have a strategy in place before problems hit, precisely because no one can accurately predict the future direction of the stock market or economy.
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The daily blips of the market are, in fact, noise — noise that is very difficult for most investors to tune out.
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The tendency of investors to follow the market’s momentum and bet on whatever has worked recently is accompanied by antipathy to whatever hasn’t.
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Stock market efficiency is an elegant hypothesis that bears quite limited resemblance to the real world.
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There is always a tension in the financial markets between greed and fear.
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If the market’s going wild and you want to be in it, you either have to lower your standards to stay in the game or you buy stuff which may not participate because it’s not part of the game at that time.
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A lot of my stocks don’t work. The beauty of the stock market is that if you are wrong, if you put $1,000 up, all you lose is $1,000. I have proven that many times.
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If you looked at September 1986 to October ’87, the market was unchanged. It had a thousand points up and a thousand points down and they only remember the down.
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For some reason, you lose money rapidly in the stock market but don’t make it rapidly.
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You can lose money very fast, in two months, but you very rarely make money very fast in the stock market. When I look back, my great stocks took a long time to work out.
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Volatility gets you in the gut. There’s no question that when prices are jumping around, you feel different from when they’re stable.
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Markets are shaped by what I call “memory banks.” Experience shapes memory; memory shapes our view of the future.
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What other people are doing in the market is not relevant to what you’re doing.
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I can’t say enough about the fact that earnings are the key to success in investing in stocks. No matter what happens to the market, the earnings will determine the results.
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The novice soon learns that stocks are likely to maintain an upward or downward trend for long periods of time with minor interruptions of the major trend.
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One point movements may be likened to the ripples of the stock market, whose occurrence may be influenced by so great a multitude of factors that it is impossible to forecast them. Ten-point movements may perhaps be compared to waves.
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People who exit the stock market to avoid a decline are odds-on favorites to miss the next rally.
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What makes stocks valuable in the long run isn’t “the market.” It’s the profitability of the shares in the companies you own.
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You need to know the market’s going to go down sometimes. If you’re not ready for that, you shouldn’t own stocks. And it’s good when it happens.
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Behind all the smoke and noise on the market’s surface, it’s important to remember that companies — small, medium, and large — make up the market’s backbone. And corporate earnings drive stock prices.
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Most useful and most dangerous are the stock market averages, most useful in revealing the general trend of the market, most dangerous if they mislead the trader into forgetting that, after all, his profits depend on the movements of the individual stocks in which he deals.
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