“Markets can remain irrational longer than you can remain solvent.” - John Maynard Keynes

John Maynard Keynes' famous quote, "Markets can remain irrational longer than you can remain solvent," emphasizes the unpredictable nature of financial markets and the risks of betting against them, even when you believe they are mispriced or irrational.

Keynes suggests that:

1. Irrational Market Behavior: Financial markets don't always behave logically or in line with fundamental economic indicators. Prices may fluctuate wildly due to speculation, investor sentiment, or external shocks that don't align with actual economic conditions.
2. Risk of Timing the Market: Even if you're correct in assessing the market is irrational (e.g., a stock price is overvalued), it's challenging to predict when that irrational behavior will correct itself. The market can continue to behave irrationally longer than an investor can sustain losses from being on the "right" side of the trade too early.
3. Solvency Risk: If an investor places a bet expecting the market to revert to rationality, they can lose a lot of money if the market continues its irrational behavior. A fundamentally sound investor can go bankrupt (lose solvency) before the market corrects itself.

In short, Keynes warns that even when you believe the market is misbehaving, it may continue to do so for longer than your financial position can tolerate. This highlights the importance of timing and the perils of assuming that markets will quickly align with rational expectations.

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