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Never Sell: Buy and Hold Forever | 7 comments | Create New Account
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Never Sell: Buy and Hold Forever
Authored by: martingale on Thursday, January 27 2005 @ 10:42 PM EST
I'll stand up and say yes. Before the fraud was known, when expectations for the future of internet growth were different, Nortel had a very different valuation. It's only in retrospect, now that we know about all the fraud, now that we have more informed expectations, that the thinking in 1999 and 2000 becomes obviously wrong.

Since I've said "before the fraud was known" I'm obviously rejecting the strongest version of the EMH, as someone knew the books were cooked. The weak and semi-strong forms, I think, are consistent with the existence of bubbles both in the market as a whole and in stocks. What explains bubbles is changing expectations and understandings, not suddenly irrational behavior.

I agree that behavior is a factor in the market, there's ample evidence for that; but the behavioral effects in the market attenuate the EMH, they do not repudiate it. Behavioral factors can explain, perhaps, long-run differences between "value" and "growth" stocks, etc., but it's not a get-out-of-jail-free card that you can play to ignore the evidence in favour of the EMH.
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