The Greenspan Put: Put as much blame on Greenspan as possible!

While everyone is now signing on to the lynch Greenspan mob, here is someone who appears to have been six years ahead of the mob.
Losch Management called out Greenspan in a Client letter from 2002.

Behavioral Economics tells us that markets learn from pain but forget about rational values after long periods without economic pain. If this is correct then it is likely that concepts such as “Soft Landings’ and the “Greenspan Put” fathered a good deal of our recent foolishness, and history will not view Mr. Greenspan’s role quite as enthusiastically as the business press does today.

I like this comment on Losch’s behavioral finance page:

Markets are not about math, they are about psychology, and although, in a lot of ways, the market may be very efficient it certainly is not rational. The market is very efficient at registering not only the value of the stock but also the current mood of ‘Mr. Market.’ The price of a stock at any given point can be seen to have two components 1. Its value, and 2. A psychological component determined by the degree of mania or panic prevalent in the mind of the participants.

Many investors concentrate on the first component, value. They dive down into detail to determine what the value right now is. To make their guess work sound analytical perhaps even scientific they call it intrinsic value and parade it around for all to see as a reliable indicator of value. Value is part of investing, no more.

OT: Intelligence isn’t everything. The average IQ in that building in Greenwich, Conn. [the offices of Long-Term Capital Management], was probably over 155, wouldn’t you say Charlie? Buffett in Foolish 2007 Interview

Related posts:

1. Behavioural Finance Part One