Monday, November 19, 2007

Do you buy or sell an appreciating asset?

This must be "undercover economist" day at HongKongMacro. Here's another facinating post by Tim Harford.

The crux of the post: should you buy an asset that has appreciated in price, or not? Clearly if you failed to buy it when it was cheaper before, and you were rational about your decision then, you should be less likely to buy the asset now. But many financial analysts seem to have different ideas. The fact the price has gone up must mean that it's an asset worth holding.... or something like that.

I shouldn't complain. Markets would be far less interesting if we all invested like economists. There would be no bubbles, and we'd have a lot less to talk about! Just look at the Hang Seng Index, which has dropped almost 15% since October 30.

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