Monday, October 6, 2008

The Market: Another Learning Experience

I've been getting phone calls from investing buddies, asking my thoughts about whether they should sell their stocks. First off, I've got very little to lose. Thus for me, it is a bit of an academic exercise. Sometimes not having money to risk is a blessing.

"What would I do?" I ask myself. The first thing is a no brainer. If I were going to need my money soon and maybe even later, I'd sell out, the operative reasoning being bird in hand better than two in bush. But what about longer term? Well, some point out that the market over time goes up. I recall the average rate of return was 7% or 11% a year, depending on your source. Of course, the exact figure is irrelevant now. I reply, yes, but it took over twenty years to return to pre1929 crash levels. Still savvy investors like Warren Buffet are snapping up some goodies. Of course, they're getting perks you or I would never get.

Given time, even were we to go into a depression, the American economy will right itself. Al Queda pronouncements aside, the rumors of our death are greatly exaggerated. The money of investors, however, might never be recovered. I have owned stocks that have ceased to exist overnight, although the companies bearing the name continue to carry out business. Talk about unfair. I wanted those suckers to die. I don't know what I would do, but I do know I'd have to ask myself, "How much am I willing or able to lose?" Common sense.

Which leads me to my real point. The "irrational exuberance" of investment, entitlement, and irresponsibility has overwhelmed this nation for decades. However angry they may be at whomever, Americans are no different than the investment giants that have collapsed- over leveraged and under capitalized. I know the lunacy was contagious. I used to chide myself for not investing my pension in the market. As it is, we're a tad overextended. And I'm not a particularly materialistic type.

The moral of the story is that our parents and grandparents were right. There is something to be said for saving, living within your means, and handling money with respect. I can still hear my father exclaiming, "Le han perdido respeto al dinero" when he saw house prices. He was right. If there is anything good to come out of this, it is to force us to take a look at our priorities. And right about now, my mattress is looking pretty good. 'Nuff said.

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