As he said, "Mainly I wanted to know why such smart men and women--and they must be smart because if
they aren't smart, why are they rich?--do such foolish things.

Here's what I learned: the seven habits that help produce the anything-but-efficient markets that rule the
world:

1. Think short term. A few people in that meeting tried to talk about the long term--say, about what kind of
earnings growth U.S. corporations might be able to achieve over the next five years. This sort of thing was
brushed aside as too academic. But wait: Any economist will tell you that even a short-term investor should
look at the long run. This year's stock price depends on this year's earnings plus what people think the price
will be next year. But next year's price will depend on next year's earnings plus what people next year
expect the price to be the following year.... Today's price, then, should take into account earnings prospects
well into the future. Try telling that to the practitioners.

2. Be greedy. Many of the people kept talking about how they expected a final "melt-up" in prices before
the big correction and how they planned to ride the market up for a while longer. Well, maybe they were
right, but if you really think stocks are overvalued, how confident should you be about your ability to time
the inevitable plunge? Trying to get those extra few percent could be a very expensive proposition.

3. Believe in the greater fool. Several money managers argued that Asian markets have been oversold, but
that one shouldn't buy in until those markets start to turn around--just as others argued that the U.S. market
is overvalued, but they didn't plan to sell until the market started to weaken. The obvious question was, If it
becomes clear to you that the market has turned around, won't it be clear to everyone else? Implicitly, they
all seemed to believe that the strategy was safe, because there is always someone else dense enough not to
notice until it really is too late.
 

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