conciously_naive

Back at the Bottom

good commentary, touching on some great points. I cant even begin to say how many times I have heard quotes such as:

"I am not a market timer, but I dont think we should be buying now"
or
"I know that it is dangerous to think it is different this time, but I think it really is different this time"
or one of my favorites
"it is so obvious that the market is going to break through the lows and collapse"

Naturally, everyone was unable to predict markets earlier in the year, but now, with 500 point swings being a regular thing, everyone knows exactly what is going to happen. Suddenly, everyone is throwing statistics and any previous form of market analysis out the window because it didnt work in the last 2 months. I even read an article with someone denouncing Modern Portfolio Theory, claiming diversification doesn't work. It makes me wonder how some people find the mental capacity to breath while thinking at the same time.

As this article mentions, the most important thing is that people understand the risks in the equity markets and what risks they can afford when reviewing their financial situation. There is less risk in equities today than there were in January, believe it or not. The market has taken out 45% of the risk in the S&P 500 from last year's high, which is a pretty large amount of risk reduction. Of course, the same person that was buying then is much more concerned about the risk in the markets now that the picture seems more dire.

People are obsessed with the concept of being right in this market. For some reason, staying invested right now seems like the stupid thing to do, so everyone wants to sell today and buy back when the market is at 5 or 6 thousand(because they know for sure it is going there). In my opinion, instead of trying to win, or beat the market, people should just sit back and focus on what they can control; their own finances.

People who attempted to become real estate tycoons through flipping condos and trading "gurus" trying to time every ebb and flow in the market with a margined portfolio should never be invested. They seek risk when the expected gain from the investment is low, and avoid risk when the expected gain from the investment is high. Not someone I want on my team, and I suggest they give up on investing all together for their own sake and sanity. For anyone who makes a habit out of thinking rationally, then you may very well have some disposable cash sitting around that you don't have earmarked for some other commitment that you are unsure of what to do with. If history is any teacher, then it may be rational to commit some of that money to the market.