By 
It’s a bit of an exaggeration to say that many people are losing their shirts (if not worse) due to the ongoing financial turmoil. Some got caught up in some truly egregious scams, but for most of us, the losses came through our conservative investments than we previously thought.
What happened? What happened to the smart insiders who poured money into Hyper Drive for a fee, but came back with a loss? Are all these letters behind their names really worth their weight on paper?
To be fair, in a year when even Warren Buffet is having a tough time, we can ask for little more than mere preservation of capital. But for millions of boomers ready to retire, this is no comfort. The S&P index has returned to the lows of 1997, the bloodbath continues on Wall Street and Main Street.
Trouble began to brew in late 2006 as many forecast low growth for 2007. However, the market defied expectations and the Naked Emperor pressed on.
Now, in hindsight, the picture is very clear. The US and several European countries were experiencing huge credit bubbles fueled by real estate. Many banks were fully leveraged on their subprime loans. Debts were piling up (residential, business, and credit cards). But the general consensus, or should we call it wishful thinking, was that at worst there would be a soft landing.
Instead of heeding the pleas of a minority of economists and analysts to get out of the market, more individual and institutional investors poured money, hoping to ride the ever-increasing wave to riches.
The media was no help. The 24-hour squawk box provided few insights and meaningful discussion on the topic. Eager to fill in their screen time, so-called experts and analysts were brought in, each with their own agendas. The stage was set for them to further confuse the public and fan the flame of speculation.
At a time when the only thing left to say should have been: we’re in trouble, how do we get out, and by the way, get out of the market right now; the discussion on short-term speculation and trading opportunities continued.
Even as online discussion of the true state of the economy becomes ever more evolved, timely, and reliable, it pales in comparison to the media machines that dominate the airwaves. Is it any wonder that on a day of epic market decline, McCain, a respected political veteran and what one might expect, an informed citizen representative, could pronounce that he believed the economy was “fundamentally strong”? I bet I know what show they had on TV while he was waiting backstage for his campaign rally.
In that vein, let me address the main topic of why being smart and educated does nothing for your investment portfolio. This may seem quite old-fashioned, but the basic human virtues of integrity, patience, self-awareness, and self-understanding are the qualities that will make you a winner in the investment game. And the sooner we recognize that, the sooner we can start making smart and wise decisions in our investing lives.
Let me explain. Did you ever turn on MSNBC and see Jim Cramer hanging around? Have you followed Ben Stein’s ideas about the American economy? Do you think these guys are dumb and uneducated? Of course not. They both have very impressive resumes that can only attest to their level of intelligence and education. But both embody everything that is wrong with commercial media reporting.
I’m not sure how one can sleep at night, or expect to be taken seriously, with the knowledge that their changing perceptions of the market are recorded for eternal derision. Because what they preach is no longer rational economics or investment strategies, it is EGO-nomy. At the end of the day, this is nothing less than selling integrity for media exposure.
Unlike those vultures in the media, most of us, as well as our investment advisers, are well-meaning, sensitive, and intelligent people. In fact, many of us who are actively involved in managing our portfolios are educated or self-taught in the field of personal finance and financial planning. Perhaps because we are stubbornly intelligent, self-deception sometimes creeps in and our egos take over.
Every five-year-old can understand the principle of buying low and selling high. While in reality, few investors abide by the rule, while always hoping to outsmart the system and everyone in it. Sure, the overall market decline in 2008 was unprecedented in both its scope (truly global) and its sectoral scope (except for gold, the dollar, and some consumer product groups). But a year ago, a slew of investors were still trying to jump on the gravy train and make a few bucks before the system went off the rails. Calls for full withdrawals from the stock market were in the minority, but they were certainly there. Yet most of us don’t listen. Because we thought we knew more and were smarter than the rest of “them.”
If nothing else, this bear market may be a humbling experience for everyone. Especially the smart and educated ones.