Speaking of sociology and "mob mentality," today "The Market" lost 500 points because Wall Street is afraid we might be heading into a recession.
Wall Street--where you can't swing a stick without hitting a "financial professional" of some sort and where economic numbers are released daily--is now afraid we might be in a recession. Well, at least they've caught up to the rest of us.
I am not a "financial professional," but I did work for 2 years as a stockbroker and have studied both history & economics, and what I seem to know that Wall Street doesn't:
1. Economic cycles are exactly that--they expand and contract. If one looks back to earlier recessions, one might notice that the economy shrinks every 8-10 years, then expands.
2. Stocks are risky, and the smart investor takes a LONG-TERM approach, and uses dollar cost averaging (which can be done for as little as $25 a month with some mutual fund companies) to take advantage of market swings.
3. Bubbles burst.
4. Don't loan money to people if you don't know if they can pay you back.
5. Never, ever, EVER check your account balances daily.
6. Never, ever, EVER invest short-term money in the stock market.
7. Recession does not equal the Great Depression. When banks failed in the Great Depression, there was no FDIC, there was no Federal Reserve System to insist banks have a certain amount of cash at all times, there were no limits on borrowing money to invest in the stock market. We did actually learn a lot from the Great Depression.
8. If your investments are so risky that you are panicking, you have the wrong investments.
9. Check your emotion at the door. Warren Buffet, the richest man in America, is buying strong companies that are selling for a discount. He is not running around like Chicken Little yelling "The sky is falling! The sky is falling!"
10. If you had HELD your investments through Black Monday (October 19, 1987--one of the largest drops in financial history) and not sold like the thousands of Wall Street lemmings, you would have made all your losses back & then some within a few short years.
11. The "Dow" or Dow Jones Industrial Average is composed of 30 stocks. To say that "The Market" did this or that because 30 stocks did this or that is completely ridiculous. That's like basing a traffic report on the traffic in your own driveway.
12. If a country routinely spends more money than it has, one can't expect its citizens to behave any differently.
13. ONE CAN ALWAYS FIND SOMETHING TO WORRY ABOUT IF ONE LOOKS HARD ENOUGH!
2 comments:
I have been trying - and trying - and TRYING - to preach calm to all catastrophizing little chickens in my life, but as they all seem hell-bent on having their communal nervous breakdown, I am saving my breath. However, I enjoyed your 13-point summation above and may be tempted to quote from it in future. I am particularly enamored of points #11 and #12. Thank you.
Thanks for being one of the few to talk sense!
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