Article Image
IPFS News Link • General Opinion

"Peak Rationality" Hit In 1980, And Since Then It's Been All About "Emotion"

• by Nicholas Colas

The second is a review of a new academic paper that tracks the use of "rational" versus "emotional" words in English language books and periodicals from 1850 to the present day. "Peak rationality" was in 1980 according to this work, and "emotion" has been making a strong comeback ever since. Markets reflect societal trends, so any wonder "meme stocks" happened?

#1: Never buy a stock or investment theme making new 52-week lows. We often mention this piece of market wisdom, but today I (Nick) will discuss it in a little more detail. It has taken me decades of experience to understand all the nuances of this old trader's aphorism, so here is my highlight reel on the topic.

The first time I realized the power of this rule was watching a close friend and institutional money manager buy Enron in 2001 as the stock was collapsing. You probably recall how this once high-flier imploded during a wave of accounting scandals that eventually led to its bankruptcy. My friend, a CPA with an MBA, thought he had a handle on the company's fair value after doing a lot of work on the name. He didn't. He bought every new 52-week low until his firm's risk manager forced him to sell what had become a huge loss. He left the business shortly thereafter, never to return.