Predictably Irrational

With a title that is a better description of what we can expect from academia in the area of finance, Predictably Irrational attempts to refute the claim that we behave in rational ways, by showing that we don't. My response: "Speak for yourself, brother."

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The following is a response to comments to the initial post above . Am pasting my reply here to make it easier to read, especially since the post that started it all is only a couple of sentences long:

Wow. I love the subject but will just state where the major points I disagree with are--and leave it at that.

**Most people today act irrationally but philosophically it's not relevant. Every single person has the choice to see the world through their own eyes, to start with the facts, apply logic to them, and act accordingly. If some or most do not, that is their problem--and they should speak for themselves rather than applying what is true for them or a group of them to everyone. (Thus my comment.)

**People do pick up all kinds of beliefs growing up, and hold them undigested in their subconscious. The ideas are not integrated in with the rest or their knowledge, nor with other ideas they hold that are often contradictory. The results of this are contradictory emotions, and actions which don't make sense--based as they are not on ideas derived from facts but on a hash of mixed concepts and feelings. Again, that many people give up their minds at such an early age is true, but this is not the proper state of man and certainly not the only state possible.

**Rationality does not in any way imply omniscience--the ability to know all of the facts--but it does rest on the idea that humans have the ability to gather facts, integrate them via a process of logic into conclusions, and thus live their life and deal with nature, invest in businesses, and so on, successfully.

The proof that one can do the above is hopefully easy for anyone reading this to introspect, but if not the results of man's ability to deal with facts rationally is all around one--just pick a single thing of value and ask what made it possible, and could it exist if man were the helpless, irrational plaything of nature and emotions that many in academia make him out to be.

**With regards specifically to investing, like I said before yes it's true that many are irrational in both buying and selling stocks. Here again, though, that does not mean all are--nor that man is by nature irrational.

**I don't know whether the book makes the claim from some men to all for sure, which is why my only comment on it specifically was as a sort of warning. If it merely points out that some participants act irrationally, and why, the book could obviously have some value--both in making oneself more rational or more able to spot the irrational actions of others (and profit accordingly).

But focusing on the what others are thinking or feeling is or can arguably be a waste of time in investing anyway. What matters is whether one is right on the value of a business and has bought it at a discount. The thoughts or feelings of others are of secondary importance, if one gives weight to them at all. As Ben Graham pointed out you are right because your facts and reasoning are right--not because the crowd agrees or disagrees with you (for whatever reasons).

**Business schools have for decades taught that there is no point in thinking--something Buffett has always said makes his job easier. Is it any wonder then that the market is made up of so many non-thinking, emotional participants?