Animal Spirits

It seems that last week, the equity markets decided to revalue energy company stocks upwards, while softening on technology issues.

At times like these, I am reminded of Ben Graham's famous depictions of the equity markets as person who, on some days will sell the same thing cheaply that, on other days, it will hold much more dear. With no apparent relationship between the two.

The wild ride of energy stocks so far this year bears this out. They were up significantly in January, and, then, as if a switch had been thrown, plummeting in the first ten trading days of this month. How can the long term outlook for the sector, and its various components, have been affected so much in so little time, absent any serious exogenous influences?

The answer is, as Graham observed, and Keynes, before him, "animal spirits." They seem to move investors and traders to value things in unsupportable and unsustainable ways in the short term. Thus the reason I hold stocks for several quarters. In market conditions such as these, who can possibly know that a daily value is "correct?"

Rather than attempt to trade frequently, attempting to anticipate volatile short-term price moves, I prefer to invest and hold, taking advantage of superior management and longer-term trends.