The markets having certainly been behaving in the strangest way for years. But they aren't just playing havoc with the value of your portfolio. They are also upending a lot of standard unproven investing advice that we've always dreamed was true.
For instance, how often have you heard investing advice to the effects that you can't really predict what'll happen in the market? Well how is it than that the Tobin's q metric seems to time the market very well? This is a measure that looks at how much a company is worth and then tries to work out how much it would cost to build a company from scratch.
If a company is valued at more than that, that's a sign that there's something wrong's going on and it's going to go into a tailspin. Always make sure that you take this into account. And ignore investing advice that says that you just can't time the market.
You hear it said time and again that the markets are an efficient way of distributing wealth. This is such an accepted truth that even the Supreme Court has brought it up sometimes. Well, sorry, but the markets just aren't efficient. Consider how back in July, the Greek government bonds were trading with an annual yield of 35%. And yet, the Russell 2000 index was on absolute roll.
How is it the stock market can take a situation where everything's going to crater in three months, and then trade so well that investors think things going fine? What that means is, that you can't trust the way the markets are going. The markets are not efficient. And this is bad investing advice.
How about the old standby that if you want more returns, you had better be willing to take on more risk? Well, this isn't totally bad investing advice. But it's quite unreliable. For instance, inflation-protected US bonds are as dull as dishwater. And yet, they've done very well over the last 10 years. Over the same period of time, the S&P 500 has lost money. It doesn't always pay to go with the risky stuff. It only pays go with well-understood risks.
How about the advice that you need to put your money to work for it to do anything good? Yes, that would be a good idea. If where you put your money could actually be called work. The S&P 500 over the last 10 years could hardly be called that. If you had just saved your money in CDs, you'd have been much better off.
And finally, try to ignore investing advice tells you that putting your faith in American stocks is patriotic and the best. That's not how it works.