I’ve posted Entry #206 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called When We Say That the Market Is Smart, We Are Flattering Ourselves.
Juicy Excerpt: The market is comprised of people who own stocks. The market is us. When we argue that the market is smart, we are flattering ourselves.
The only way that the market could be smarter than the rest of us is if the people who comprise the market were smarter than the rest of us. Rich people own more stocks than people who possess low or moderate amounts of wealth. So, if you believe that rich people are smarter than people of low or moderate wealth, it would not be unreasonable to believe that the market is smarter than the rest of us.
But you don’t often hear people saying “rich people think inflation is headed upward” to support their arguments. The idea behind claims that the market believes something is that there is some ruthless truth-telling quality about markets that make their beliefs especially credible. I don’t see it. Markets are comprised of people and people get some right and some wrong regardless of whether they participate in markets.