3 ms·
how do you define irrational behavior ? what makes a 50% decline irrational ?
by vasilipupkin 11y ago
how do you define irrational behavior ? what makes a 50% decline irrational ?
- droffel 11y agoAn analogy: In a fictional world, an envelope costs $1, a piece of paper costs $0.50, and a stamp costs $0.50. In total, a full letter costs $2. You know that anyone on the street would be willing to buy each of those items at the component price. Would you not agree that seeing all 3 sold as a bundle for $1 would be irrational?
- vasilipupkin 11y agono. If someone has a model that tells them everything is about to get cheaper in the next 2 hours and will and cost 50 cents, then rushing in to sell the bundle for $1 is not irrational.
- dnadig 11y agoSince ETFs are derivatively priced, it's irrational on the face of it. If I sell you a bundle of 100 $1 bills for $50, it's irrational. ETFs are wrappers around stacks of stocks.
- vasilipupkin 11y agonot unless the ETF leads the basket of stocks down. For example, futures often lead cash, why can't ETFs lead their constituents ? if stocks are about to go down 50%, there is nothing automatically irrational about ETFs on those stocks going down 50% first. But, as I said elsewhere, if you think it is irrational, then buy the ETF