Originally Published June 10, 2017
In this video, I’ll explain how the stock market is a social system, not a rational system of numbers.
The easiest way to remember why stocks are unpredictable is to realize their prices are driven by human emotion and behavior.
Think of other times when you know human behavior to be unpredictable: kids on a playground, office politics, fashion trends.
It doesn’t matter what a price/earnings ratio “should” be. People can send it wherever.
Benjamin Graham, author of The Intelligent Investor, famously observed: “In the short run, the market is a voting machine; but in the long run, it is a weighing machine.”
Stocks rise over time as earnings grow over time. No indicator helps for short-term timing. No indicator is necessary for long-term investing.