OT Thaler We Can’t Learn From Past

Baselli: Right. But as you said, investors’ nerves have been tested in several occasions over the last few years. The outbreak of the pandemic, now the inflationary spike, and of course, the war in Ukraine. But if you think about it, even the Greek and the European sovereign debt crisis are not so distant in time, and neither is the subprime crisis in the U.S. So, are we able to learn from the crisis of the past?

Thaler: There doesn’t seem to be any evidence that we do learn. Traders tend to be young. It’s a young person’s game—mostly, a young man’s game still, because it’s one field that women have not made big inroads. But it’s a young person’s game, and I talked to my students about the tech bubble. “What was that?” Right? That’s only 20 years ago. And of course, 1987, when stock markets fell 20% in a single day—nobody knows what I’m talking about. So, I don’t think we learn, and we may not make exactly the same mistake. That’s what I do: I make a different mistake each day, not the same one. (laughs) And so, who knows.

https://www.morningstar.com/articles/1095547/richard-thaler-…

This is likely an old peoples board. So most probably do remember the crises mentioned. But Thaler is on the money when you see people enthusiastically put their life savings into meme stocks, crypto, Saul stocks…

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“This is likely an old peoples board.”

Hey - who you calling old! :wink:

Hey - who you calling old!
In my book, you’re not old until you drive an Oldsmobile Delta 88, watch golf on TV, and become a host on 60 Minutes. Also, watching movies featuring Mandy Moore or Hilary Duff keeps you young.

On a more serious note, I generally give more credibility to older people when it comes to investing. Warren Buffett and Charlie Munger are my top two most trusted experts. I remember the Dot Con bubble. I remember hearing about the Black Monday crash of 1987, but I was in junior high, so it didn’t mean anything to me.

Warren Buffett and Charlie Munger lived through the bubbles and other events that took place when I was a young child or not even born yet. So they’ve REALLY seen it all. They remember the bearish consensus on US stocks that persisted for much of the 1974-1982 period. They remember the precious metals bubble that peaked in 1980, the limited partnership bubble of the early 1980s, the Nifty Fifty bubble of the early 1970s, and the conglomerate and -onics stock bubbles of the 1960s. They even remember the Great Depression and are among the last people who can truthfully say this.

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Traders tend to be young. It’s a young person’s game—…
And of course, 1987, when stock markets fell 20% in a single day—

Hmmm, I wonder how hold he is?
Not all that many things dropped a mere -20% that day : )

205 of the S&P 500 stocks closed down more than that, ignoring the wild intraday lows.
Of course, the scarier thing in one way is that the systems (machine and human) were so overloaded,
nobody really ever knew with any certainty, then or now, what the lowest prices were.

Jim

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And of course, 1987, when stock markets fell 20% in a single day—

I recall that day. I was on-site for my job in California and driving to Half Moon Bay. Halfway through the mountains, the Breaking News!!! about the market crash came on the car radio. I was young and had no investments at that time, but my Dad did. (Every day there was at least one letter in the mail from his Merrily Lynch broker.)

He–like many small investors-- panicked and called his ML broker and told him to sell everything. Years later my Dad told me that the worst mistake he had ever made was when he sold in that panic. That lesson stood me in good stead.

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He–like many small investors-- panicked and called his ML broker and told him to sell everything.
Years later my Dad told me that the worst mistake he had ever made was when he sold in that panic.
That lesson stood me in good stead.

I used to manage money for people, before, during, and after the credit crunch.
One client overrode my vehement recommendation and sold all the (large) Wells Fargo position I had recommended for him, at IIRC something like $7 per share, the day of the exact bottom.

Yet, interestingly, he had gone to 100% cash around August 2008, give or take a bit.
He was a lesser whale at (if I remember correctly) Merrill Lynch wealth management.
His rep told him that his account was the best performing one in their division that year.

And yet…I’m not sure what the moral is.
A little fear is healthy, but not to the level of panic?
Maybe simpler: price matters.

He made money each of 2007, 2008, and 2009. So who’s to complain?

Jim

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I recall that day. I was on-site for my job in California and driving to Half Moon Bay. Halfway through the mountains, the Breaking News!!! about the market crash came on the car radio. I was young and had no investments at that time, but my Dad did. (Every day there was at least one letter in the mail from his Merrily Lynch broker.)

I have very fond memories of that day, I was a teenager and bought the first stocks on my own. I had read a couple of books about the stock market and what stuck was the phrase ‘buy when there is blood in the street’, it made perfect sense to me.
My great uncle was CFO at ICC at that time, he sold all his stocks and warned me not to buy anything, me beeing the reckless teen I was I ignored the good advice and bought what I could.
Not that I really understood what I bought at that time but one of the stocks was Mannesmann which later got the license for the first private cellular network in Germany.

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When I saw this heading I thought it would be about the currency, “thaler,” and not a person. Maybe it would be some historical lesson, or even about a cryptocurrency named “thaler.”

From Wikipedia: A thaler (/'t??l?r/; also taler, from German: Taler) is one of the large silver coins minted in the states and territories of the Holy Roman Empire and the Habsburg monarchy during the Early Modern period. A thaler size silver coin has a diameter of about 40 mm (1+1/2 in) and a weight of about 25 to 30 grams (roughly 1 ounce). The word is shortened from Joachimsthaler, the original thaler coin minted in Joachimstal, Bohemia, from 1518.

Some thaler coins are priced up to $4,000 on eBay.

In the interview, Thaler – the person not the coin – said about behavioral economics: Well, we’re making inroads in economics. Every young economist knows about behavioral economics, and every top department has behavioral economists, and every top journal publishes behavioral economics. It hasn’t made its way into the textbooks because it complicates the story. Undergraduates taking a basic economics course, they may get one chapter, but the professor finds it a little inconvenient.

Well, our Charlie does not ignore nor remain silent on behavioral economics. A very good source for Charlie’s views on and study of psychology is contained in the book in the following link:

https://www.amazon.com/Poor-Charlies-Almanack-Charles-Expand…

This is the third edition, which I do not have; I have the first and second. Evidentially it is not in print so you will need to buy a used copy, but well worth your time and money. Ignore the negative reviews – the book is not for them. Peter Kaufman, the editor, and the others did a great job.

Full disclosure: I had a small; very small; very, very small contribution to this book. Any credit I received was from the generosity of Peter Kaufman more so than from my value added.

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. . . nobody really ever knew with any certainty, then or now, what the lowest prices were.

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I believe, with the current Market Circuit Breakers, that is still TRUE! We will never know what price extremes could have reached.

sunray

. . . nobody really ever knew with any certainty, then or now, what the lowest prices were.

I believe, with the current Market Circuit Breakers, that is still TRUE! We will never know what price extremes could have reached.

True, we don’t.
A purist might argue against circuit breakers, in favour of letting the market clear and letting that price discovery be known.
But that purist would be a person who didn’t believe in the concepts of panic and contagion.
Circuit breakers actually seem to help.
Unlike, say, the way Hong Kong listed companies can simply suspend trading of their own shares pretty much indefinitely whenever they feel like it.

But back to the '87 crash: it was worse in those past cases: we didn’t even know the prices that actually took place.
The systems for keeping trade records melted down.

Of course, that was nothing compared to the Paper Blizzard of 1968. Trading volumes took off, and certificate delivery speed didn’t…not a good mix.
This article doesn’t really do it justice, but it’s an interesting read.
https://optimizeronline.com/the-paperwork-crisis/

Jim

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This article doesn’t really do it justice, but it’s an interesting read.
https://optimizeronline.com/the-paperwork-crisis/

Jim

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Interesting article! I had always been curious what “CUSIP” stood for.

In 1964, the American Bankers Association (ABA) formed the Committee on Uniform Security Identification Procedures **(CUSIP)** to develop a standard code for identifying security issues, of which there were a million or so, most of them municipal bonds.

I remember those [paper] days, I had graduated with my BS that decade.

sunray
a man with sheepskins

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And of course, 1987, when stock markets fell 20% in a single day—

I recall that day.

As I recall Berkshire was trading around 4,000, I had been very aware of it for a number of years, but it always seemed so expensive!

So when it fell to about $2,700, I jumped. With about 1/3 of my available cash.

Best decision ever, but oh so timid!

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Boy I wish I was Sal.

“Boy I wish I was Sal.”

Don’t we all. Unfortunately I wasn’t even a teenager then.

But, if I’m not mistaken, 2700 would have been right around 1.1x book value based on year end 1987.

The average closing price from March to July 2020 was well under 1.2x. We all had time to be Sal in that respect should we have been so bold.

Here’s to hoping we can all be Sal in 2045.

Jeff