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one of the biggest reasons people do so poorly as investors is they think they are going to be the ones who outsmart everyone else by timing their ins and outs .
the problem usually ends up being that it takes a nervous nellie type to bail out when markets are going higher and higher .
but it takes nerves of steel to buy in when things are plummeting and headed to stock market hell .
one of the biggest reasons people do so poorly as investors is they think they are going to be the ones who outsmart everyone else by timing their ins and outs .
the problem usually ends up being that it takes a nervous nellie type to bail out when markets are going higher and higher .
but it takes nerves of steel to buy in when things are plummeting and headed to stock market hell .
Or you could try to be a rational individual and make decisions based on analysis rather than emotion. I have spent a lifetime trying and it sometimes works.
the problem is human brains are only rational when we think about our money hypothetically . as jason zweig demonstrated in his book your money your brian we are not wired for real time correctly .
all our brains hate losing money more than we like making it and once real money is on the line the rational parts of the brain stop doing the reasoning and other less rational parts of the brain start taking over .
using brain scans and brain imaging equip. , jason was blown away by the fact different parts of the brain took over once real stressful decisions were being made about our money .
jason said the images showed the same results and sections of the brain coming in to action that reacted when the subjects watched people vomit or had to smell dog crap while in the machines .
most investors can not make these rational decisions and that is why as a group investors rarely do better than the funds got they were in .
I invest a certain percentage of my income every month that I don't think about. It's small enough that I don't miss it but big enough that it'll add up over the long term.
However, I have a decent amount of cash sitting on the sidelines waiting for a correction either in the markets, real estate or both. I made the mistake of taking my hard-earned savings and investing it in 2007. It was pretty traumatic to see it go down as much as it did and Idon't wish to repeat that. Of course my income situation was different then and I probably made a mistake investing almost all my cash in the first place. When my income went away I was screwed. Now I have a much greater cushion to ride out downturns. But I'll feel better if I invest at something below the "all-time high." It will obviously not go up forever.
I don't think we'll have another 2008 in the near or medium term. That was quite clearly a once-in-a-generation downturn. We probably won't see something like that again for 15-30 years. However, we will definitely have some downturns like 1987 or 2000 again in the relatively near future, when I'll pull the trigger on moving the cash. Interest rate increases are an obvious thing that's going to turn the market south when they happen, which they have to in the next 2 years.
The real question is how did you react to the 2008 market? Most of us sat tight and watched all our money return within a year and a half, then we enjoyed big gains for years. Did you?
even if you retired in 2008 , it may have been mentally stressing but today you are no different balance wise these many years in than any other average retiree group.
the quick v-shaped recovery was a non event in the scheme of things . the y2k retire is in worse shape . they are on par with the 1929 retiree 15 years in . still passing but not by a lot . so far they are on a path to be one of the worst case scenario's .they will squeak by at 4% inflation adjusted but their balance left over will be on the smaller side at the end of 30 years . .
the problem is human brains are only rational when we think about our money hypothetically . as jason zweig demonstrated in his book your money your brian we are not wired for real time correctly .
all our brains hate losing money more than we like making it and once real money is on the line the rational parts of the brain stop doing the reasoning and other less rational parts of the brain start taking over .
using brain scans and brain imaging equip. , jason was blown away by the fact different parts of the brain took over once real stressful decisions were being made about our money .
jason said the images showed the same results and sections of the brain coming in to action that reacted when the subjects watched people vomit or had to smell dog crap while in the machines .
most investors can not make these rational decisions and that is why as a group investors rarely do better than the funds got they were in .
bad investor behavior is all to common .
This is essentially the same research Kahneman and Tversky won the Nobel Proze for in behavioral economics, although from a behavioral perspective instead of of a neuroscience perspective.
i can't even describe how my brain pounded me every night trying to talk me out of the real estate venture i entered .
it gave me reason after reason of why not . but i knew it wasn't an even handed rational decision that it was trying to hand me . so i ignored the voice .
You made the mistake of looking at recession earnings and P/E ratio. The same mistake would've been made in 2009 when the market average P/E was 123.
Yes, I made that mistake in 1992, but not in 2009. Stocks were very cheap in 2009, and even all through 2010 and 2011 IMO.
Quote:
Originally Posted by lchoro
The interest rate frankly doesn't tell you anything about whether the stocks are cheap on their own merit. Two years later, the overnight interest rates were 1% and stocks were halved (or 80% less in the case of Nasdaq which were supposed to be insensitive to interest rates). If rates made stocks more valuable on their own merit, the central banks wouldn't be doing asset purchases to shore up their prices.
Well of course it's not only interest rates. Earnings expectations and also just plain old sentiment also factor into stock prices.
Quote:
Originally Posted by lchoro
There are different stocks that lead each bubble. GE was one of the main stocks during the 90's bubble. Worldcom, Enron, AOL, Time-Warner, Qualcomm, Lucent, Intel Corp, Applied Materials, and others led that bubble.
The late 1990s market, plus the ensuing correction, was a bit different than the usual bull/bear. It was a market of haves and have nots. You could sell the very expensive stocks like the ones you mention and then reinvest them back into low-valuation stocks without waiting for a crash. It worked very well.
2008-2009 was more of a typical bear that takes almost everything down.
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