Tuesday Twofer

My post disclosing our recent purchase of Medical Properties Trust (MPW) made its way to Seeking Alpha over the weekend. It prompted one reader to message me privately to note his opinion that the stock was better to sell (actually the time to sell according to him was December) because of insider sales. My reply;

There is always a bear case for every single stock in the market just as there is almost always a bull case. The decision to buy a stock comes down to weighing out both sides and then buying or not. Some percentage of decisions will be right and some wrong. This is no exception, it will be right or wrong simple is that. Insider sales are a good indicator except for when they are not if you take my meaning.   

The sentiment of my reply is likely very familiar to long time readers.

The other item is from a Jason Zweig article that ran over the weekend that looked at cognitive and behavioral issues related to investing including this;

People are revising their memory of the financial crisis, as if they were looking into a rearview mirror made of rose-colored glass. Financial planners report that clients are increasingly saying 2008 and 2009 were no big deal.

This is something we have touched on here as I think there has been a lot of this sentiment expressed in the comments here in the last four years. In 2008 there was genuine fear that the financial world was ending. The nature of extreme swings in prices is that they cause extreme swings in emotion and rational behavior. The article has several examples of this.

And of course this is guaranteed to repeat during the next crisis or bear market regardless of when it comes along. In the past I've talked about how at a time like now when stocks are are up people rationally say "of course bear markets occur" and they can tolerate the volatility but obviously that is much easier to say after four years of rising prices then in the middle of some sort of large decline "with no end in sight."

Before the crisis I used to say that it will be easier for some portion of market participants to endure large declines when they can think about them in advance, plan ahead (if they are ones to take portfolio action) and understand that large declines are a certainty, they are a normal part of the cycle. They are guaranteed to occur. The details are usually different but the market's response will not be unprecedented--in 2008 the details were different but the percentage decline at the low was not unprecedented.