Ignoring Trends

In value investing, Benjamin Graham argues that stock market trends or fads are only short-term.

"Why should future returns of stocks always be the same as their past returns? When every investor comes to believe that stocks are guaranteed to make money in the long run, won't the market end up being wildly overpriced? And once that happens, how can future returns possibly be high?"

Therefore, the true investor should always ignore trends because after a period of time, it will no longer be valid. This is also why books that claim mathematical formulas can win big are never applicable. Formulas are created retrospectively and track trends that do not exist forever.

"The passage of time brings new conditions which the old formula no longer fits."

The truth is formulas do not work on the long-run in stock markets or soccer betting. Theory cannot replace experience and old fashion "Fundamental Analysis".

In our next post, we will discuss using "Fundamental Analysis".