Given my knowledge of behavioral finance it would seem quite likely to me that there will be significant inflows into stocks in an effort to chase the trend and "make back" money that was lost in the market downturn. This is particularly likely with Dow having crossed the (meaningless) 10,000 level today. Will these investors be "buying at the top" ? Since I don't believe in market timing I have no idea. But I do know for a certainty that many who have tried to time the market missed a massive rally so far this year.
(I also wonder whether those actively managed behavioral finance funds have been selling into the recent rally to avoid herding....or would they have been better off joining the herd and riding the momentum ?)
2 comments:
I am not well versed in the theories of investing. I recently graduated from Sy Syms School of Business and majored in accounting. That being said, I understand why you would not want to make investments based on market trends (I have read "Fooled by Randomness); however, for a regular investor how could you not have seen this opportunity? I am new to the market, but with my small understanding I knew that the market was very low and would either recover, or else a lot worse things will happen...Why not adjust your method of investing, and take advantage of the fire sale prices? In business sometimes the best strategy is one that can adjust to any situation to take advantage of any opportunity that presents itself.
-Samuel
check my entry on behavioral finance mutual funds...it's tougher than you think.
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