StockHawk has an interesting perspective on investor behavior/psychology......
From: StockHawk Thursday, May 24, 2001 12:45 PM
Larry, that was another interesting article (btw it's Hickey not Hicks). One of the interesting lines was this one:
Hickey said. "People don't care about valuation. They just haven't learned anything."
One of the plausible reason you hear why technical analysis should work is that stock price movements reflect the emotions of market participants, and human emotions do not really change over time - collectively people do make the same mistakes over and over again.
Perhaps what Mr. Hickey is saying is true, perhaps people have not learned about valuations, and are still prone to follow the heard and overpay for a good story. And perhaps there is something else many have not learned, even Mr. Hickey, and that is how quickly things can change.
One of the reasons so many people paid such high prices for so many stocks was because they were able to extrapolate current events into the future. A company's earnings improved 110% this quarter therefore they can improve 110% a quarter into the future. Internet usage doubled over the last 100 days, therefore it will double again and again.
Mr. Hickey seems to feel that although stocks have fallen, they have not fallen enough because earnings have falling right along with stock prices. If I'm paying $100 for a company that earn $1 that is just as foolish as buying the same company at $10 after earnings have fallen to 10 cents. What's missing from his argument may be that the market always looks to the future. Yes earnings are depressed now. Yes inventories are too high, book to bill rates are too low, growth has slowed during this economic slowdown, but are these factors permanent? In many cases the answer is probably "no" and the market may be seeing this even before it happens.
Or we may have to resurrect the WPA and sell apples on the street corner.
StockHawk
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