I’ve posted Podcast #135 to the “RobCasts” section of the site. It’s called Today’s Stock Price Reflects Our Assessments of the Past, Present and Future.
The “experts” often talk about how the stock market anticipates future events. That does happen. But that’s not the only reality that needs to be taken into consideration. Today’s market price can also reflect beliefs from the past that have been proven to be unfounded. For example, investors are not willing to accept immediately that stock prices will not be returning any time soon to the prices that applied pre-crash. This is one of the reasons why it is not right to say that today’s market price is “efficient” or “rational.” It is investor emotion (reflecting beliefs about the past, present and future) that determines stock prices.