According to a recent article by Business Insider, Seth Klarman has warned investors that today’s high stock prices are masking perceived risks.
Here’s an excerpt from that article:
“When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high,” Klarman wrote. “By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”
He flagged the following three forces that investors are regularly combatting:
- greed and fear, which “pressure investors to do the wrong thing at every turn”
- “aggressive brokers, investment bankers and traders who routinely promise more than they can deliver”
- and investors focusing on the short-term and trend-following, and restrictions that are supposed to limit risk but actually prevent outperformance.
You can read the full article here.
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