Human Behaviour

Hi David,

There are many moving parts that make up successful investing with understanding the psychology an important factor.

Markets often reach levels where we hear a multitude of downgrades on valuation grounds, but these come with assumptions which can change.  The miners are an obvious example where things change due to the underlying commodities price, i.e. a gold stock is overvalued when golds at $US3,000/oz BUT cheap at $US5,000.

We do think Analysts follow price more than they admit. Valuation calls are rarely made in isolation. After a correction, it’s easier to justify the same multiple because momentum has stabilised, and the risk/reward has improved after a pullback.

Ultimately, markets are not a weighing machine in the short term, they’re a voting machine with moods. Prices don’t just reflect fundamentals; they reflect comfort. Once fear is purged, logic can magically return!