Great post on The Big Picture today: How Rational are Markets?

I am always delighted when other financial experts speak truth plainly and without a sales based agenda. Barry Ritholtz of Ritholtz Research and Analytics, NY, NY does this often and today he speaks volumes on the present market climate.
“Rational or Irrational? Efficient or Inefficient?
Those are questions that academics wrestle with, and individual investors need to come to terms with.
A classic example is what market action gets credited or blamed on. Yesterday's sell off was blamed on weak retail sales and Citibank's big loss and write down. (I have a quote in today's NYT article, Citigroup Loss Raises Anxiety Over Economy)
However, these events were well known by those people who were looking in the right places (like readers of this blog). So how were these events such a surprise as to cause a major dislocation?
It comes back to crowds getting the big picture wrong, and individuals identifying those instances. I call this Variant Perception and contrarian investing. Ironically, seeing the variant is relatively easy — the harder part is in the timing. That's what technicals and market internals are for.
Wait — Are you claiming that you are smarter than the markets?
No. What I am very specifically saying is that there are opportunities to be uncovered if you can identify where the crowd is wrong. It happens all the time.” Read more…