Just how smart is Wall Street? (a peculiar inability to learn from past mistakes)

MSN Money ^ | 10/29/2011 | By Stephen D. Simpson, Investopedia

[SeekAndFind]

Individual investors see a steady stream of paeans to Wall Street, praising not only the substantial resources of professional investors but also suggesting (sometimes subtly, sometimes not) that these professionals are smarter and more capable than the average investor. While there are certainly plenty of columns out there decrying the mistakes of professional investors and pointing out that disciplined individuals can do just as well, the fact remains that the financial media overwhelmingly tilt toward the idea that Wall Street is smarter than you or me.

But is it really?

The word "smart" has plenty of definitions, but Wall Street has such a peculiar inability to learn from certain mistakes that it seems worthwhile to question just how intelligent the Street really is.

The Street can't stay away from bubbles.

Nothing of any real size can happen in the investment world without the involvement of institutional investors. So while retail investors are often dismissed as "dumb" money, it is the professionals who ultimately add the most air to investment bubbles.

It was professionals, not individual investors, who awarded absurd IPO valuations to stocks like TheGlobe.Com, Geocities or eToys.com.

Professional investors were also apparently happy to pay upward of 30 times sales for Cisco Systems , Qualcomm and JDS Uniphase back in the bubble days.

Only a few years later, institutions happily dove into the housing bubble. Those institutions apparently were not bothered by data clearly showing that affordability was declining at a precipitous rate and that lending standards were abysmally low. In fact, institutions got so casual about the bubble that they happily relied upon models that told them housing prices could never fall -- even though there were plenty of examples from Japan and other places outside the United States showing what could happen.

[bert]

First of all, wall street is not a monolithic, homogeneous body. Wall Street makes no decisions.

Individuals make decisions to buy or sell.

Regarding the rises and falls, money can be made on both by astute individuals who benefit from careless suckers.

Keep in mind, if you don’t sell during a turn down, you lose nothing.

[HighlyOpinionated]

The Love of Money is the Root of All Evil.

It also makes people on Wall Street blind to anything but the gleam of gold and the smell of new money.

[DJ MacWoW]

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"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Thomas Jefferson

[Sam Cree]

All countries in the world have experienced repeated booms and busts, whether they be advanced economies or emerging.

[the invisib1e hand]

The Names on Wall Street insist on hiring only degrees from Name schools for the Front Office. And collectively they amount to nothing more than herd followers.

Wall Street was built by PSD's, but it was destroyed by PhD's.

[the invisib1e hand]

The article makes valid points.

[SeekAndFind]

RE: Wall Street was built by PSD’s, but it was destroyed by PhD’s.

Excuse my ignorance, but what is a PSD?