One incident I can remember personally. After a stock holders meeting at a company facility a mutual fund manager overheard employees talking about a company ship on a big project had run into a bad storm in the Mediterranean sea and the ship was in dry dock in Greece and was going to be a few days behind schedule getting to where it was going. The guy panicked and sold all the shares in his fund. The actual consequence of the ship being in dry dock was nothing. Its like you truck being at the mechanic have a tire changed and a hole fixed in the oil pan. Being a few days late didn't effect the operation at all.
That is fairly typical of Wall Street.
It's because it's money that drives people.
However it benefits the investors that are smart, as if you properly research items then you will be able to trade at a profit, sometimes it's being disciplined and knowing when to trade, and even if stock goes down, keeping it till it makes profit.
On my source they routinely do trades at around 10%, sometimes the stock trading goes down 5-10% but it always gets to that profit level regardless, however some people would be tempted to cut losses.
So it's always handy to have a researcher, analyst and accountent when trading shares.
"Why do markets behave irrationally?"
Because the markets are people. What else don't you expect from humans? Randomness, chaos?
You don't "control" a rabid dog. The irrationality is the human nature of emotions, or the nature of life itself.
If you don't like the heat, get out of the frying pan. Learn to control risk, or move to something "safe" like CD's.
I think your point is that what we're being taught doesn't work, or more than 50% of investors could beat the S&P.
Learn to control risk and choose your risk level. You are complaining about volatility. You can choose low risk with unconstrained volatility, or you can choose high risk with constrained volatility, and everything in between. Measuring risk and constraining volatility make us professional risk managers rather than traders or investors.
Markets are driven by fear and greed. Either element will drive prices beyond their fundamental value.
Also it can be considered expansion and contraction of risk premiums.
Who watches the watchdogs?
Say there is a good or bad news for an industry. Not stocks all companies in that industry go up or down. Also, sometimes the stocks of less performing company go up, while that of better performing one goes down. It applies to industries too. Also any stock that is going to severely fall, goes up too high and the reverse too happens. Why doesn't the watch dog control all these? It affects the small investors adversely.
