Enron was actively engaged in accounting fraud, which is a crime and not merely short-term thinking. Once word got out that the company had no actual value, its stock went literally to $0.
But consider the S&P 500. It has its ups and downs, but with an upward bias that has lasted since, well, long before I was born. If the market in general consists of Enrons defrauding their investors, or companies self-destructing by taking only a short term view, how can this upward bias be explained?
If you really believe the market consists of short-term thinking, you can make a fortune shorting those over-valued stocks. Can't say I wish you success doing that, as I am long.
Enron inflated their numbers for short term gain. One example is how they claimed VOD revenue that hasn’t yet occurred.
I get the impression you think I’m claiming the market is always short-term biased. As with Enron, I think the market can be biased in the short term while still being accurate long term when those biases are realized and corrected for. As I think Buffet said, in the short term it’s a voting machine but in the long term it’s a weighing machine.
The problem is if you get caught confusing the two. Just ask anyone who planned on retiring around 2008. The difficulty is knowing when you’re being “irrationally exuberant” or not. We humans are awfully good at fooling ourselves.
Same with the S&P. It’s easy to claim it goes up in hindsight... unless you’re needing to cash out on those sideways decades. It’s not claiming a long position that’s hard, it’s timing it correctly to avoid those sideways and down periods that’s difficult.
But consider the S&P 500. It has its ups and downs, but with an upward bias that has lasted since, well, long before I was born. If the market in general consists of Enrons defrauding their investors, or companies self-destructing by taking only a short term view, how can this upward bias be explained?
If you really believe the market consists of short-term thinking, you can make a fortune shorting those over-valued stocks. Can't say I wish you success doing that, as I am long.