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Overcoming Bias Commenter's avatar

This means that market prices are predictable but only after the passage of 10 years of time or so.

I can 'predict' most things that happened in 1999 with relative accuracy.

In a market in which prices are set by emotion in the short term but by economic realities in the long run, investors should be changing their stock allocations in response to big price changes, not practicing Buy-and-Hold strategies.

That depends on your time horizon, doesn't it?

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Overcoming Bias Commenter's avatar

This is not true at all. The issue is something like "What is maximum economic risk adjusted growth?"

EMH true believers think that the extra .2% per year we get is worth bank panics and depressions every 20 years.

Most non-autistic people think differently. They correctly note that in a world with lots of bank panics and depressions, they have good odds of losing everything because of somebody elses bad decisions. They correctly note that maximizing gains is not optimizing risk.

Even if the EMH was true - even if it was - using it as the exclusive guide in how to run the economy is stupid. We don't want to maximize our wealth exclusively, we as a citizenry, like relative stability much more.

How much of your net worth would you give up to guarantee you would not lose the rest? Pure EMH people say "I would never take this option", but most people would say something like 10%

We have laws and restrictions on every other area of complex human behavior. Would you really claim that we should abolish all stop lights and traffic laws?

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