Irrational Exuberance. Remember the phrase?
Twelve years ago Alan Greenspan posed a question: how can we tell the difference between rational expectations and irrational exuberance?
For the next three years, the market went up by over 20% per year. Many thought that those prices were irrational. But if you had invested in stocks and held on through the ups and down when Greenspan posed his famous question, you would have earned 6 ½ %, even with the latest pullback.
Even for the Maestro, it’s hard to pick out a bubble when it’s happening. Back in December of ’86 we were on the verge of a productivity revolution that few could predict. Staying invested through thick and thin allows us benefit from unexpected good news.
Irrational Exuberance may be the best way to describe a market. But the only way to really know, is by looking backwards.
Douglas R. Tengdin, CFA
Chief Investment Officer
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