Mauboussin: Understanding Procyclicality And Preparing Your Portfolio

Michael Mauboussin on procyclicality...

"Successful long-term investors are able to avoid both irrational exuberance and irrational despair, which enables them to take advantage of the extreme behavior of others," that's one of the takeaways from a new research report from Michael Mauboussin and team at Blue Mountain Capital Management. The report, titled 'Procyclicality and its Extremes' considers the impact of procyclicality on investors and its role in bubbles and crashes in financial markets. Procyclical investing could be considered to be reckless or irrational, especially in the value investing community. However, Mauboussin's paper notes that such behavior "need not be reckless or irrational" because procyclical behavior is warranted when the economy is strong, profits are growing, and the outlook for equities is bright. The real question is whether or not the fluctuations in asset prices are "a justifiable result of changes in fundamental values" or "irrational exuberance" (irrational despair) for down markets. Mauboussin notes "successful...

Rupert Hargreaves

Sign up now and get our in-depth FREE e-books on famous investors like Klarman, Dalio, Schloss, Munger Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. Prior to his investing and writing career, Rupert began his career as a proprietary currency trader.Rupert holds qualifications from the Chartered Institute For Securities & Investment and the CFA Society of the UK.Rupert covers everything value investing for ValueWalk

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