In discussing market changes, Howard Marks, remarks that psychology overwhelms fundamentals in the short run as the reason why markets can appear irrational. This is a neat way of holding both the idea that investors are rational and markets are irrational simultaneously.
- The Robinhood momentum algorithm might be perfectly suited to capture the psychology in the short-run
- The stock market boom during the pandemic appeared irrational (how could the market do well when there is so much unemployment and businesses failing?) yet it was largely due to rational fundamentals (increased savings and low interest rates resulted in investors moving from bonds to stock to get the same level of returns).
- Tournament like fields with asymetric and convex payouts favor high-variance strategies amplifies this short-run psychology.
- People are bad at long-term thinking