great summary, Carl; I can't think of anything else to add...
rthornton
· 9 months ago
Tremendous post, Carl. Great points to ponder and evaluate in light of current circumstances.
Noble Duncanson
· 9 months ago
First - thanks for keeping this website up and running it's a great resource for me to keep thinking about these topics even though they are often far from my mind (though not the case right now). I was hoping you could elaborate more on #8 from the list above - I understand that a money market is not a productive long-term strategy, but could you talk more about how the dynamics of taxes and inflation actually make it so that this type of account costs more than it generates? Do you have any exmples? Thanks.
Carl Richards
· 9 months ago
@ Noble: Yes I will. It might take me a bit to get it up. I am planning a number of posts to elaborate on some of these points. Based on emails and comments so far #2 and #8 are the vote winners...let me know your vote.
Matt_SF
· 9 months ago
Rarely can I say I agree with each segment of a 14 point list. Well said!
I particularly liked the concept of writing yourself a letter and open it again in 5 years. I keep a trading/investing journal that I've kept since 1998. It looks like crap with all the coffee stains, but I consider it one of my more prized possessions.
Ian
· 9 months ago
Thanks for this list. It's really very helpful.
As a general note, the more I read your blog, the more I realize that the lessons you are teaching here apply to many other situations. As a singer, I have heard (and probably repeated) so many times, "It's not the talented who end up working, it's those who work the hardest." Yet this sinks in for only a few. Behavior gap? You bet.
Thanks again.
aorbeth
· 9 months ago
This gave me great hope and optimism. Thank you!
Carl Richards
· 9 months ago
Thanks Beth. I think that our history shows that optimism has been the only realism.
darlene lee
· 9 months ago
great calming perspective enlarging post - thank you!
Nick
· 9 months ago
Great post....especially when it seems that everyone today is running around worrying about the sky falling on them. Nice to have have a little perspective!
You really summed up what I've been feeling with #9....if capitalism is a sound economic system then we have nothing to worry about-the market with come back. Its a matter of riding out the storm.
If capitalism IS NOT a sound system, then the whole point is moot because we'll have bigger problems than the market at that point...like which part of the mountain I should settle on and who to buy my seeds from!:)
Kent @ Financial Philosopher
· 9 months ago
You make many great points. As a financial planner and investment advisor, I tell clients, friends and readers of my blog that this environment is where planning can be most useful and comforting.
As humans, our greatest fear, simplified, is the unknown. We would prefer to see something ugly in plain view than to feel and see the nothingness of the dark -- and often the picture painted by one's imagination is a magnified version of whatever emotion one is currently feeling.
For example, in "good times," one's imagination will fill any existing empty spaces (unknown) with over-confidence and positive images. In "bad times," one's imagination will fill those empty spaces with pessimism and horrific images.
Financial planning, by virtue of shedding light on one's financial picture, removes much of the unknown, at least on a personal level, and enables an individual to begin stepping forward again with renewed confidence -- regardless of how ugly the immediate environment...
"Once men are caught up in an event they cease to be afraid. Only the unknown frightens men." ~ Antoine de Saint-Exupery
Forty2
· 9 months ago
On point #1: I saw it coming and went to cash in Sept. 2007. Still there. Nobody can call a market bottom, but with simple moving averages on the major indices and some Dow theory you can definitely call a long-term trend reversal, and that's when I'll get back in via index funds. Sure I'll miss the absolute bottom, but whatevs.
So even though I've been laid off and have no income besides the UI dole, I'm still in better financial shape than a lot of people and for that I am grateful.
No arguments about the rest of them, though. OK, on #8, we are in a deflationary environment, and inflation isn't a concern for me so far. Definitely food for thought.
Carl Richards
· 9 months ago
@fforty: congrats on you succes timing the market. I am glad it work for you, but the evidence on the "Dow Theory" is clearly inconclusive at best. In fact all the academic work demonstrates that there is no reliable system to time the market. If there was we would all be using it. Please don't get me wrong, I am glad it worked for you this time. But I do not what anyone to be unclear on this one: market timing does not work.
Forty2
· 9 months ago
I suppose much of that "get out" call was plain old luck. I think what pushed me over the edge was working a trade show in Miami that year where every cabbie and waiter and bartender was yapping about how many condos they were in the process of flipping. I went flat not long after coming home.
I took a small long nibble w/FAS mid-Friday. We'll see.
Carl Richards
· 9 months ago
Good point. Good luck is better than no luck, but luck is not always a repeatable strategy...
nerotoZero
· 9 months ago
nice
Neal Frankle
· 9 months ago
I like it Carl. I really like it. You say it all in one place. Its right there.
Of course, you'll find detractors and folks who want to argue but thanks. You draw a good and solid line in the sand.
Leo
· 9 months ago
I strongly disgree with #1. Google “housing bubble” and you will find documented evidence of thousands of people who saw this coming years ago. Of course, back then, their opinions were widely dismissed by the mainstream as hysterical fear-mongering. However, in hindsight, the financial collapse has played out almost exactly the way most “bubble-heads” had expected years ago. You may argue that these opinions were merely educated guesses, not knowledge, but in economics, educated guesses are as close to knowledge as you’ll ever get.
The really disturbing thing is the complete absence of this opinion in the industry itself. By now, I would have expected a very strong contingent of “I told you so” dissenters rapidly rising through the ranks of the financial industry. I also would have expected a large minority of contrarian investors to profit from the bursting credit bubble. Clearly, neither of these things is happening. When the professional experts get paid huge amounts of money to make foolish bets that are *worse* than the bets of laypeople, it indicates some serious problems in the system ...
rthornton
· 9 months ago
@Leo - I don't think we all have to agree on this one, but by strongly disagreeing with #1, I think you've proven the very point it makes. The past always seems so obvious, doesn't it?
Google doesn't index future search results; only the past. If there is more than one opinion about something, at least one person will be right and at least one person will be wrong. Today, there are lots of opinions on what happens from here and at some point in the future, you'll be able to Google "2008-2009 stock market" and use the results to support whatever you believe at that point in time.
Today, there's a lot of negative news and opinion in the press. In fact, it seems to be everywhere. But if you look and listen, there are also those, including myself, who are very optimistic about the future without feeling the need to make any predictions or try to time the market.
A guess, whether educated or not, is still simply a guess. This is true whether discussing investing, economics or anything else.
Finally, even if we all can agree that everyone saw this coming but no one else would pay attention to them, I don't feel that helps you decide what to do today. Where will the market go from here?
I don't know and I don't believe anyone else does until we have the benefit of hindsight to answer the question for us.
Thanks for the post Carl. I only wish it was as easy for clients to take and understand this advice. I love the first point as I cannot tell you how many plumbers, to gardeners tell me they saw this coming and so should have their broker. Pleeeeeease. No one truly saw the depths or magnitude of this............ I preach diversified quality holdings in tough and easy times. When markets are strong, people get greedy and overweight in specific sectors or stocks. And in sad markets such as now, everyone wants cash and proclaims that they told their advisor they did not want any risk........ you cant win either way.
All Comments
number of posts to elaborate on some of these points.
Based on emails and comments so far #2 and #8 are the vote winners...let me
know your vote.
I particularly liked the concept of writing yourself a letter and open it again in 5 years. I keep a trading/investing journal that I've kept since 1998. It looks like crap with all the coffee stains, but I consider it one of my more prized possessions.
As a general note, the more I read your blog, the more I realize that the lessons you are teaching here apply to many other situations. As a singer, I have heard (and probably repeated) so many times, "It's not the talented who end up working, it's those who work the hardest." Yet this sinks in for only a few. Behavior gap? You bet.
Thanks again.
realism.
You really summed up what I've been feeling with #9....if capitalism is a sound economic system then we have nothing to worry about-the market with come back. Its a matter of riding out the storm.
If capitalism IS NOT a sound system, then the whole point is moot because we'll have bigger problems than the market at that point...like which part of the mountain I should settle on and who to buy my seeds from!:)
As humans, our greatest fear, simplified, is the unknown. We would prefer to see something ugly in plain view than to feel and see the nothingness of the dark -- and often the picture painted by one's imagination is a magnified version of whatever emotion one is currently feeling.
For example, in "good times," one's imagination will fill any existing empty spaces (unknown) with over-confidence and positive images. In "bad times," one's imagination will fill those empty spaces with pessimism and horrific images.
Financial planning, by virtue of shedding light on one's financial picture, removes much of the unknown, at least on a personal level, and enables an individual to begin stepping forward again with renewed confidence -- regardless of how ugly the immediate environment...
"Once men are caught up in an event they cease to be afraid. Only the unknown frightens men." ~ Antoine de Saint-Exupery
So even though I've been laid off and have no income besides the UI dole, I'm still in better financial shape than a lot of people and for that I am grateful.
No arguments about the rest of them, though. OK, on #8, we are in a deflationary environment, and inflation isn't a concern for me so far. Definitely food for thought.
you, but the evidence on the "Dow Theory" is clearly inconclusive at best.
In fact all the academic work demonstrates that there is no reliable system
to time the market. If there was we would all be using it.
Please don't get me wrong, I am glad it worked for you this time. But I do
not what anyone to be unclear on this one: market timing does not work.
I took a small long nibble w/FAS mid-Friday. We'll see.
repeatable strategy...
Of course, you'll find detractors and folks who want to argue but thanks. You draw a good and solid line in the sand.
The really disturbing thing is the complete absence of this opinion in the industry itself. By now, I would have expected a very strong contingent of “I told you so” dissenters rapidly rising through the ranks of the financial industry. I also would have expected a large minority of contrarian investors to profit from the bursting credit bubble. Clearly, neither of these things is happening. When the professional experts get paid huge amounts of money to make foolish bets that are *worse* than the bets of laypeople, it indicates some serious problems in the system ...
Google doesn't index future search results; only the past. If there is more than one opinion about something, at least one person will be right and at least one person will be wrong. Today, there are lots of opinions on what happens from here and at some point in the future, you'll be able to Google "2008-2009 stock market" and use the results to support whatever you believe at that point in time.
Today, there's a lot of negative news and opinion in the press. In fact, it seems to be everywhere. But if you look and listen, there are also those, including myself, who are very optimistic about the future without feeling the need to make any predictions or try to time the market.
A guess, whether educated or not, is still simply a guess. This is true whether discussing investing, economics or anything else.
Finally, even if we all can agree that everyone saw this coming but no one else would pay attention to them, I don't feel that helps you decide what to do today. Where will the market go from here?
I don't know and I don't believe anyone else does until we have the benefit of hindsight to answer the question for us.
You can see it here http://tinyurl.com/d4z3o4 on the BehaviorGap facebook page.
Soon we will launch www.behaviorgap.tv
I preach diversified quality holdings in tough and easy times. When markets are strong, people get greedy and overweight in specific sectors or stocks. And in sad markets such as now, everyone wants cash and proclaims that they told their advisor they did not want any risk........ you cant win either way.