What we can learn from the ‘turmoil’ of world financial markets: Experience counts.

As the editor and publisher of two books on the effects of the property cycle (The Day the Bubble Bursts by Olly Newland and How to Survive and Prosper in a Falling Property Market) I take an interest in identifying the lessons drawn from experience — especially in these history-making, record-breaking times.

What I’ve noticed is there’s been plenty of uninformed negative ‘end of the world’ hysteria reported in the media — and equally, a slew of unrealistic over-optimistic sales-pitches (like: buy now or you could miss out!) peddled by others.

Who’s right? Does it matter?

Something else I’ve noticed is that the older, wiser heads I talk to are singing from a different song sheet to the spruikers and mis-timed property developers (whether here or on the Gold Coast). They’re saying keep your eyes open, and box carefully. Some even say wait, things could very well get worse. (From experience, when a salesman says ‘act now or you could miss out’ it’s time to be wary and re-examine the offer. Ask the Blue Chip investors.)

Not being a natural a pessimist, I’ve been heartened to read a couple of good articles in the latest TIME magazine – 13 October, with the Great Depression soup kitchen on the cover.

First, ‘Back to Reality’ from former British Chancellor of the Exchequer Nigel Lawson makes some excellent points:

TIME magazine

Banks and financial institutions throughout the Western world acted as if the economic cycle was a thing of the past. Instead of understanding that the longer the debt-fueled boom lasted and the greater the debt burden became, the greater would be the carnage when the inevitable day of reckoning arrived, they acted as if the longer the good times lasted the more they could be regarded as a permanent fixture. … The current crisis reminds us that, in a free economy, the price of the greatly improved long-term performance that only free economies can provide is an ineradicable economic cycle. As John Maynard Keynes pointed out in the 1930s, the cause of the cycle is alternating moods of optimism and pessimism, and its motor is credit, which enables optimism to determine economic activity.

If this article had been around at the time, I would have included extracts of it in How to Survive and Prosper. Read it twice. (full article here.)

In the same issue of TIME, the cover story is this: The End of Prosperity? by Harvard history professor Niall Ferguson. Not so edifying perhaps, but still good historical perspective — and worth a read, in my opinion.

Make sure you also watch the associated slideshow ’10 steps to the financial meltdown’ here. (By the way, ‘Step 1’ is identified as ‘The bursting of the debt-fueled property bubble.’
That’s exactly what Olly was saying in The Day the Bubble Bursts.)

Given all this, should we be gloomy?

Well, first let me say it would be pretty easy to feel negative if you have a lot of debt right now or if you face financial stress as a result of other people’s defaults (Blue Chip being a good example, but plenty of others around, including the flow-on effects of the finance company and develolper collapses.) Several of my friends and acquaintances have hit problems and face hardship in the current market. It’s very tough.

Even so, I’m NOT giving in to doom and gloom.
Because I’ve learnt from my own experience that whatever the slings and arrows that afflict us, however tough it is, we always make it. It’s just part of the cycle.
Confidence can be destroyed for a time, but the market always recovers.

Last weekend I heard this very thought expressed (beautifully, eloquently as usual) by veteran BBC World Service business editor Peter Day. I’m a big fan of Mr Day (vastly experienced, even-tempered,‘seen it all, joined the dots’) and wanted to share this with you.

This is Peter Day’s conclusion to the latest From Our Own Correspondent (MP3 5 mins)
(Don’t be put off by Alan Johnston’s Hamlet-like introduction: “…malign financial forces threaten to crush hopes and dreams, plans and ambitions”.)

Here’s the full episode BBC podcast (MP3 23 mins):

From where I sit, this all goes to show the value of talking with – taking advice from – people who have genuine experience.

Steer away from smooth-talking, self-promoting amateurs who are still learning the ropes. Avoid self-proclaimed ‘experts’ who promise a magic formula, secret elixir or a ‘new model’.
Worse still, run a mile from people using urgency to try to sell you any form of investment (especially ‘no-money-down’, ‘guaranteed’, ‘act now or miss out’,) or peddling an exotic mortgage… to earn a commission.

With all the noise and drama, it’s a bit like being lost in the bush:
There are things you can do to improve your chances and keep yourself safe… and there are other actions – gambles – that can make your situation worse and actually put you in harm’s way. Real experience (yours or others) can teach you the difference.

These are historic times. The glib johnny-come-latelys can’t give you answers they don’t have. Seek out people who’ve been there before — over the long haul. Ask for their help.