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This analysis explores Robert J. Shiller's concept of "Irrational Exuberance" within the context of stock markets, examining historical, cultural, and psychological factors that contribute to market bubbles. Key elements include the effects of the internet, demographic shifts, media influence, and herd behavior. The text discusses investor confidence, expectations, and the impact of technological advancements, concluding with a call for rational decision-making in investment strategy. Furthermore, it includes insights on candlestick patterns and their significance in market psychology.
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Irrational ExuberanceRobert J Schiller • The Stock Market Level in Historical Perspective Part one – Structural Factors • Precipitating Factors: The Internet, Baby Boom, and Other Events • Amplification Mechanisms: Naturally Occurring Ponzi Processes Part two – Cultural Factors • The News Media • New Era Economic Thinking • New Eras and Bubbles around the World Part three – Psychological Factors • Psychological Anchors for the Market • Herd Behavior and Epidemics Part four – Attempts to Rationalize Exuberance • Efficient Markets, Random Walks, and Bubbles • Investor Learning – and Unlearning Part five – A call to action 11. Speculative Volatility in a Free Society
Irrational Exuberance • Memorization is key • The Memory Bookby Harry Lorayne • Break down the information in pieces • Precipitating Factors • CCI • BEG • GOD • IEG
Irrational Exuberance • CCI • Capitalist Explosion • Erosion of worker solidarity • Compensation with stock price • Labor turning into a commodity • Cultural and Political Changes • Upward pressure felt on stocks due to tax, materialism, wealth affect • Information Technology • The public perception that the revolution creates
Irrational Exuberance • Amplification Mechanism • How the effect of the 12 preceding factors is amplified by • Investor confidence • Investor expectations • Influences on investor demand
Irrational Exuberance Investor confidence • The belief in the resilience of the market seems to stem from a generalized feeling of optimism and assurance. • The upward bias of the market will surely never fail • Note Nikkei 225
Irrational Exuberance • Investor Expectations • The rise in materialistic sentiment and individualism is amplified by the psychological impact of the strong up trend in the market
Irrational Exuberance • Influence on Investor Demand • Public Attention • Fast Money • CNBC • Investment Clubs • Feedback Loops • Ponzi Schemes
Candles • KNOW the formations and UNDERSTAND their meaning • Either name the formation, if not discuss the meaning… • “the bearish candle formation developing underneath the intersection of the 50/100 MVA’s is signaling a potential continued move in the direction of the trend…” • “the shooting star underneath the intersection of the….”
Psychology • Bodies • Large bodies are powerful moves • Smaller bodies are less powerful • Dojis are indecision or pause • Shadows • Short shadows give body credibility • Long shadows can reveal strong support or resistance
Psychology (cont’d) • Shaven Head • Bullish close, powerful move up • Bearish close, strong resistance • Shaven Bottom • Bullish close, strong support • Bearish close, powerful move down
