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Preparing for the Fall

Jun. 06, 2008 7:01 PM ETDIA, QQQ, SPY101 Comments
Graham Summers profile picture
Graham Summers
Prepare yourself now.

The market is widely referred to as a discounting mechanism. However, its ability to discount anything extends only as far as the collective knowledge of its participants. And to be blunt, the vast majority of today’s investors— professional or otherwise— know little if anything about making money in the market.

With the advent of discount brokerages— E*trade (ETFC), Ameritrade (AMTD), etc— in the late ‘90s, a huge wave of novice investors entered the US financial markets. Between 1990 and 2000, the number of US households invested in mutual funds doubled from 25 million to 50 million. This wave of new, uninformed money supported two major trends: the Tech Bubble, and the rise of the financial media.

Regarding the latter, in 1990, stock market developments were relegated to 15 minutes of coverage on major news programs. Only ten years later, there were at least three entire channels—CNBC, Bloomberg, CNNfn— devoted solely to financial markets. The commentators and hosts of these shows looked good on camera, spoke knowledgably enough about markets, but in reality, didn’t have a clue what they were talking about. Their job was to provide content in large quantities, not content of high quality.

The issue of ignorance extends beyond individual investors to professional traders. As Bill King put it in an earlier essay, “There is a whole generation of traders whose knowledge of investing and financial history dates back to 1990 at most. Put another way, there are thousands and thousands of guys in their 40s who trade for a living and have never seen a real bear market or recession.”

These investors, while more sophisticated than their novice counterparts, are almost equally ignorant of any market development outside of their trading models and investment frameworks.

I mention all of this to illuminate why the

This article was written by

Graham Summers profile picture
Graham Summers is Chief Market Strategist of Phoenix Capital Research, a global investment strategy firm located in Washington, DC. He is a Fuqua Business School MBA graduate, and has over a decade of experience in investment strategy, financial research, and private wealth management. An acclaimed communicator and strategist, Graham’s cutting edge business and research insights have been featured in several media outlets around the world including: CNN Money, Fox Business, Rolling Stone Magazine, Crain’s New York Business, the New York Post, MoneyTalk Radio, and The Huffington Post among many others.

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