Stock market plummet?

Question

I think much of the drop in the stock market has been somewhat irrational. Are oil prices going up; yes. But, I personally think a large part of this is due to speculation. There are some companies that seem to be weathering the storm, though. According to B. Graham the market goes back and forth between irrational exuberance and irrational pessimism. It seems that we are getting closer to the pessimism at this point. Any thoughts greatly appreciated regarding these comments.

Answer 1

Stock market prices reflect not just the present economic conditions but also expected future economic conditions.  And since no one can predict the future with any certainty.  You can make perfectly rational arguments for both negative and positive outcomes in the future.

I think the market is always logical and rational.  But the premises for its rationality are uncertain.  And that's why the outcome of the market's rationality is so fickle and uncertain.

Perhaps the stock market has been a little bit like a pyramid scheme during the last couple of decades.  Many investors don't care about getting dividends any more.  They buy stocks in the hope that later on they will sell these stocks to someone else at higher price.  Investors depend on ever increasing stock prices.  Just like recently people depended on ever increasing house prices.  And I think that eventually stock prices will end up the same way as the house prices have ended.

All pyramid schemes eventually fail in the end.

Answer 2

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