Do ItI have taken an excerpt, again for the second time this week (marked < ... >) from John Mauldin's newsletter (to subscribe or visit his site, see below, or click on the link on the right side of this site). I am not going to bother with lecturing on and on by describing the stock market as a place for buyers and sellers and who represent to extremes of varying psychologies.
What matters is that the macroeconomic health is not good. This is especially the case for the car, housing, and banking industry. This has now spread to consumer spending and employment. The only known events keeping the market from free fall is massive bailout money.
Recent results continue to illustrate that the TARP bailout money is not working at a time frame that everyone wants. As a result, this will create both buying and hedging opportunities for we the investor. Remember:
Patience is a virtue.
...but inaction leads to lost opportunities, which in itself leads to the excerpt below about investor psychology.
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The Investor Psychology
People make mistakes when they invest. They do so as a result of their biases of judgment or mistake their perceptions as reality. There are several basic mistakes:
- Over-Optimism: Most investors tend to exaggerate their own abilities.
- Over-Confidence: Lends investors to overstate their knowledge, understate the risks, and exaggerate their ability to control the situation.
- Cognitive Dissonance: Investors often have an incredible degree of self-denial.
- Heuristic Rules: Rules of thumb that we employ for dealing with the daily information deluge by evaluating based on how closely a situation, person, etc., resembles someone or something, rather than examining and questioning; i.e., we "frame" and/or "anchor" the event/person/action.
Freud once said, "Thinking is rehearsing." What he meant was that after you accumulate the data and analyze the opportunities, then you have to take action. In the world of investing, there is no substitute for taking action.
It's not what you make, it's what you keep.
Cliff W. Draughn, Managing Principal
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