…some thoughts on the news media, and a lesson from Barack Obama
Following on from an earlier discussion about market cycles being driven by alternating waves of pessimism and optimism, I’d like to examine another angle of this ‘social mood’ aspect of the market, warn you about those who would exploit it… and pick up a lesson from Barack Obama.
The trouble with pessimistic doom and gloom is that it is highly contagious — and surrendering to despair never helps anyone.
Alarm, defeatism and paralysis are very rarely useful or productive.
On the other hand, the trouble with ignorant optimism is that it can lead you into danger by exposing you to risks which experienced investors have learned to avoid. Ignoring market realities and failing to learn the lessons of history are a recipe for a hammering.
It’s a fact that the great sharemarket crash of 1929 destroyed a lot of wealth — but much more was wiped out as investors bought back into ‘dead cat bounces’. It was the same in 1987 — I know people who were untouched by the 19-20 October crash but then got scalped as ‘bargain hunters’ buying back into the false rallies that followed.
Buying back too early into a falling market can be very dangerous.
As you probably already appreciate, one of property’s great advantages as an investment is that it moves relatively slowly. Sure, values can rise and drop — sometimes dramatically — but not overnight, nor over a weekend even a month. That very important PLUS is a by-product of property’s lack of liquidity.
But like a coin, this factor has two sides: that same advantage can be a real drawback when you want to (or have to) sell in a hurry. Fortunately, that’s not a position many of us find ourselves in. We can ride it out. The rapid turnover that property traders have relied on during the recent boom is (for now) a distant memory. The cycle rolls on.
So it’s been interesting in recent times to observe two messages promulgated by individuals seeking to be seen as leaders in the real estate investment ‘industry’:
1. ‘eeeeeeek! We’re doomed! This unprecedented global meltdown is a catastrophe of epic proportions’
2. ‘Buy now, no money down, hurry, hurry, before you miss out’
I’ve learned from personal experience to regard those making such statements with considerable distrust.
What’s needed is realistic, measured, impartial advice based on genuine experience.
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