11 October 2011
The following article was written by Larry Swedroe from CBS Moneywatch. I think it does a decent job of summing up what's been happening over the past few months. Most importantly it touched on something I often stress to clients....the behavioral and psychological part of the markets.I've highlighted a portion of the article to which I've pointed out a number of times. Regardless of what drags a market down near-term, there will always be those who see it crashing even further. At the very bottom there is typically a herd like mentality to make literally the worst decision. The same thing goes for at the top of a frothy bull market. Greed takes over and bullet-proof optimism will bring in the very last buyer into the market only to buy something they never should have and then see it get blasted. Folks...turn off your television and don't let "news" dictate your emotions.
As advisors and students of financial history, we know that investors hate uncertainty. While most of us understand that only legends in their own mind have perfect clarity as to the future, when presented with conditions that create a heightened sense of uncertainty, even investors with well-designed plans react, letting their emotions and stomachs take over. And stomachs don’t make good decisions. Fear, and eventually panic, tends to set in.