"When things go well and people make money, as they did for the past decade, the experience stimulates investors' reward circuitry. This causes them to seek more profits and ignore possible risk, leading, for example, to a bubble. When things take a turn for the worse, panic overrides rational decision-making, leading to a crash. Only when the market is steady does the rational brain take over."
"If you were an efficient-markets type, I think you'd be hard-pressed to explain what happened over the last few weeks. And if you were an irrational finance person, you'd be hard-pressed to explain what happened over the previous 10 years. So I think that the only way to reconcile the two is to acknowledge that both are different aspects of the exact same truth."
"In optimistic times, difficult-to-value stocks were wildly popular and therefore made much more money than average. In pessimistic times, they were wildly unpopular and therefore made much less money than average. On the other hand, easy-to-value stocks, which are considered safer, were more popular in pessimistic times than optimistic ones, but their prices stayed much closer to average."
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