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Investing: You're Doing It Wrong

Morgan Housel
January 30, 2013

The Internet meme "you're doing it wrong" pokes fun at doing things backwards, like herd dogs getting chased, a Citigroup ad asking customers to budget better while it simultaneously laid off thousands of workers, or trying to launch a boat by driving a truck straight into a lake.

Let me add another photo to the collection:

Source: Robert Shiller, author's calculations.

With stocks approaching a new all-time high, an entirely predictable theme is playing out: Analysts who thought the S&P 500 (INDEX: ^GSPC) was full of risks when it traded at 800 are now convinced it's a great buy at 1,500. Investors who thought the market was too dangerous to buy at nine times earnings are now sure it's full of opportunities at 15 times earnings.

Guys, you're doing it wrong. 

This happens every market cycle and, no matter how often people vow to avoid looking like lemmings, they fall for the sam