Many market analysts are currently asking themselves a question: is the party over on the stock market? Tech stocks in particular are suffering losses like they haven’t in a long time. The crashes of Netflix, Meta, PayPal could herald the end of the Big Tech era, some speculate. “It should be clear that some parts of the market were overvalued,” says US economist and Nobel laureate Richard Thaler (University of Chicago). The problem: “When you’re in what seems like a bubble, you never know when it’s going to stop. I and many others thought tech stocks were overpriced as early as the 1990s, but the correction didn’t happen until years later, from 2000 onwards.”
Thaler gave the keynote at the Morningstar Italy Awards for Investing Excellence 2022. On the sidelines of the ceremony, the economist spoke about the ability of investors to learn from the past and questioned the current situation on the financial markets. He also had a few tips for investors ready.
Regarding the current price losses, Thaler says: “Today we do not know whether this period is the beginning or the end of the correction.” He sees no evidence that investors are learning from the mistakes of past crises: “Traders tend to be young. It’s for young people. When I mention 1987, when stocks fell more than 20 percent in one day, no one knows what I’m talking about. We may not make exactly the same mistake, but similar mistakes.”
Despite the unpredictability of the market, Thaler also has tips for investors: “Most individual investors are better off using a rule, whatever it is. The reason: your instincts are wrong.” Smart individual investors are also well advised to use a diversified portfolio and then not to change it. The best thing to do then is to stop following the market for a while.
