"The time has come," the Walrus said, "to talk of many things: of shoes and ships and sealing wax, of cabbages and kings."
The time has come to stop listening to the party line from Wall Street and the academic community and to stop deluding ourselves about the stock market. We need to accept the market for what it really is and embrace a new perspective about why the market behaves the way it does. Then we need to seriously adjust our investment tactics accordingly.
Both the investment industry and the academic community have for too long defended a stock market paradigm conceived in a different age and based on theoretical concepts that have been questioned time and time again. The inner workings of the investment world are as different as they could possibly be from the days when much of the current principles of corporate finance and investment management were developed more than a half century ago. New insights on the market have arisen but have not yet been widely disseminated.
In the tumult surrounding the crash of 1929 and the subsequent Great Depression, there were sweeping changes in how the public looked at stocks. Congress produced a flurry of legislation in the 1930s and 1940s designed to regulate the industry and protect investors from the kind of unscrupulous practices that were blamed for much of the damage that had taken place during that catastrophe. Financial academia went into high gear searching ...