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Author: dawglaw One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5026  
Subject: Irrational lack of exuberance Date: 9/8/2000 3:41 PM
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After the killing fields of April it was widely predicted that the markets would swoon through the summer and rally in the fall. The July recovery was hastily discarded and the August extended rally has been even more hastily discarded in just 4 days. What sense does this all make?

During law school in my Business Organizations class we spent a great deal of time studying the market and debating the random walk theory of the market. There is the general consensus that the longer the time period that is examined the clearer the "walk" appears towards a company's valuation and conversely the shorter the period the less clear the "walk" towards the intrinsic valuation.

But what should be made of the extreme fluctuations of the market this year? Are we randomly walking towards true valuations? If the market were a rubber band that expands and contracts based on the news, ie, earnings and fed meetings, the rubber band has been expanded and contracted beyond imagination this year. Does anyone recall the one-day 500 point drop and simultaneous recovery in one day earlier this year in March or so? Should we be any less concerned that this fluctuation now occurs over two weeks instead of a day? I can't really answer any of these questions, but it all seems very curious to me.

I do have some thoughts on why this may be so. First, there is the fed thing, but I think sometimes greater forces are moving the market, especially the NASD. For one, I truly believe that the NT's, CSCO's and especially the DIGL's and SCMR's of the investing world are very complex to the people who "move" the markets. For the last century I think the big companies that led the market were very understandable to the "movers". For example, when MMM came up with post-it notes I would like to think everyone quickly understood its value. When NT comes up with a network product I just seriously doubt the "movers" who pontificate about the stock truly understand the product like they did a post-it note, and the unknown often breeds fear. Moreover, there are those who clamor for the conch shell in the time of fear and try to lead the pack, sometimes to very bad consequences.

I don't mean to make this sound like doom and gloom, I just think the market fluctuations are going to be very severe over the next several years. I hold extensive positions in these companies and I do not get to hold the conch shell, but I truly belief the random walk will get me where I want to go. I have slowly learned to only check on my portfolio occassionally and not try to micro-understand everything. Based on my belief that 99% of the "movers" don't know their ass from a hole in the ground, I see no reason to worry over the short-term effects of their pontificating on my holdings anyways. So everyone have a good weekend and enjoy the last lingering days of summer.

Kevin
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