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why why did the market collapse in the fourth quarter and the answer is people freaked out that that's uh i mean i don't think anything really changed fundamentally um you know uh on our the book came out on october 2nd and on i started to make a book tour that day and on october 3rd everything seemed to be okay and on october 4th the market started to go down and it went down for the next october december two months uh no uh 80 days and uh you know it was the worst december since 1931.
what changed well the first thing i i was you know i was on the road so i i wasn't getting all the inputs in real time as i normally might have been the first thing i was told was well the interest rates have spiked up and the 10-year hit 325 that day and uh my reaction was but but didn't everybody know that higher rates were coming why if it's higher rates why would they be priced in today but not two days ago since everybody knew they were coming number two they said well oil is collapsing my reaction is that good or bad you know i mean oil price low oil prices bad for the oil companies but great for everybody else and great for the consumer and maybe even great for the economy so is is the is it collapsing oil price really a reason why stocks should go down then of course there was concern over the the possible trade war with china but that was in the cards for months and uh you know so i i really don't see anything that changed that much fundamentally from october 3rd to october 4th and uh for for my views on that subject i'll refer you to a memo i wrote in february of 16 which in the early 16 the markets got off to their worst art in history and i wrote a memo called on the couch because uh you know i i said in the memo that once in a while the market needs a trip to the shrink and i said in the mar in the memo and this is one of the things i hold most strongly and this is my only explanation for uh the fourth quarter is that in the real world things fluctuate between pretty good and not so hot but in the market investors go from thinking that the outlook is flawless to thinking out that the outlook is hopeless and that's what happened i can't tell you why they did it maybe things were like you know i had that list of things where is it it was like the first slide i had that list of things that incorporated positive expectations and maybe some critical mass of investors said you know what maybe we've been too positive and they turn negative that's all i can tell you um doesn't make any sense but that that's what that's what the market does oh by the way so so i put out that memo on a thursday and on the next morning i went on bloomberg to talk about it which is what i usually do when i put out a memo and they kept saying to me well the market is down isn't that a sell signal the market's down isn't that a sell signal and so i ran back to my office i wrote another memo entitled what does the market know which i put out i think three days later and the market doesn't know anything the market is just made up of a bunch of people and it is not any smarter collectively than the people are individually and the people went freaked out by the way what were the reasons for the declines in february 16 anybody have a good memory interest rate rise oil prices down and then there was a fund called the third avenue fund that melted down and it turned out that they had had a portfolio of illiquid credit investments but had promised liquidity to their investors which is a combination that often ends in sorrow but it was it was quite similar and you know the point is you anybody who said who takes his buy and sell signals from the market which is to say if prices are up that means it's a buy and prices are down that's a sell i think is really nutty because you know the point is as as my idol warren buffett says i like hamburgers and i bought i eat more hamburgers when they're on sale and anybody who thinks that low prices are a sell signal and high prices is a buy signal there's something wrong so the point is as as the memo what does the market know tried to point out don't count on the market for rationality and don't look for rational explanations it's all psychology if you can understand the the flaws of psychology you're in much better shape than looking for rational explanation you
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