Stock, bond and real estate prices are all uncomfortably high

Stock, bond and real estate prices are all uncomfortably high
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Stock, bond and real estate prices are all uncomfortably high

Stock, bond and real estate prices are all uncomfortably high

Stories about the futility of trying to beat the bazaars are noteworthy, but they are generally not as lively as the stories of the murder of an acquaintance on Robinhood or via Flipping House, and therefore usually as contagious. are not.

To see how investor opinion has been about popular models over time, I at the Yale School of Management direct a stock market confidence survey of institutional and high-income individual investors.

Consider this survey question: “If the Dow drops 3 percent tomorrow, I think the day after tomorrow the Dow will: 1. rise, 2. decrease, 3. stay the same, or 4. have no opinion.” The answer “1. Increase” usually dominates. There are some exceptions, such as during the 2000 burst of the millennium bubble in the stock market and the Great Recession. But we are not in one of those negative phases. The buy-on-dip confidence index I calculate from these answers has been consistently strong over the years.

The prevalence of fiction in investing can be found in the genre of “self-improvement” videos and books that encourage people to believe in themselves and distrust so-called experts. It supports a popular culture where people are more willing to take risk in investing.

In his “Rich Dad Poor Dad” from 1997In the books, Robert Kiyosaki compared the wealthy father of his childhood friend, who was uneducated but had a strong business sense and drive, with his own poor father, who was educated, politically correct and lacking confidence. . The reader is encouraged to identify with the wealthy father. According to Publishers Weekly, the books have sold millions of copies worldwide.

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Former President Donald J. Trump has contributed to a risk-taking speculative culture. With Meredith MacIver, he published “Trump: Think Like a Billionaire: Everything You Need to Know About Success, Real Estate and Life” in 2004.. this book Claims: “Billionaires don’t care what the odds are. We don’t listen to common sense or do what is conventional or expected. We follow our vision, no matter how crazy or stupid other people think it is.” Why don’t you understand.” More generally, such claims encourage the celebration of their own unrecognized – and, in many cases, non-existent – ​​genius.

These various theories, models and hysteria are affecting the pricing of important asset classes in puzzling ways. It is difficult to predict when the three big markets may fall, but statistics show that the risk of a downtrend has increased over a period of a decade or more.

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