Hubris....
There is a reason I named the SEM portfolio 'Hubris - SEM'. There's an analogous portfolio named 'Hubris - Biotech'.
A book was recently published regarding the Long-term Capital Management fiasco. In the two reviews I read of it, in the New York Times Book Review last week and in Baron's this week, there was one word which kept surfacing. Hubris. The hubris of LTCM's managers in their confidence of their knowledge of markets. The arrogance that led them to astronomical levels of leverage thus their their hubris that did not allow them to account for the most obvious unknown - the often arbitrary direction of mass behavior especially under stressful circumstances.
Hubris. We're all full of it. I made countless posts why 'I knew' that Klic would remain strong since this cycle is going on until 2003. Well, I still believe in the cycle timing and I'm totally clueless as to why the stock and sector are caving like this. But that's precisely what hubris is all about: you think you know something inside-out, you think all the facts support your position (and I refer folks to the AMAT thread for a much more active and ongoing form of this hubris) and then a silly little thing like the irrationality of human behavior gets in the way.
IMO, SEM investors can look into a crystal ball to a see a very similar scenario about to play out - I don't know when it's going to become manifest, but the Biotech sector is currently where the SEMs were 6 months ago. Most biotechs have had 5, 10-fold ++ runs and are valued in never-never land. The discussions on the biotech threads continue unabated - just as they did this spring on the SEMs - about why the valuations are justified, why the biotechs are the wave of the future and thus will continue to run, and why everything makes sense. The most widely followed biotech 'experts' are preaching 'this will continue to improve' for one highly rational reason or another precisely like the most widely followed SEM 'experts' preached their rosy scenario for their sector (while I never claimed to be an expert in the SEM field, I certainly was on the 'rosy' bandwagon). No sector is immune to irrational run-ups or irrational sell-offs. In my view, the biotechs represent the former and the SEMs the latter. In my view, the relative performance of these two sectors will do a complete flip-flop in the next 6 to 9 months (and just ask Red Dragon how often I've been wrong in the past. Ans. - very often).
Hubris. We're all full of it. |
