What an amazing week. First, thanks to J.D., Ramit , and all the others who’ve joined the discussion. It’s exciting to see the Idea Tour spreading as more people talk about the real path to investment success. Second, going forward each week, we’ll bring together some of these conversations from around the web. Finally, we hope you’ll continue to participate in the discussion.
Behavior Gap: The Psychology of Investing
At Behavior Gap, Carl Richards is on a mission to help investors overcome the self-destructive behaviors that prevent them from prospering. Over the past week, while preparing for an upcoming presentation to a conference of financial planners, I’ve had the chance to e-mail and speak with Carl about his site and his goals. “Any way we can encourage people to think about money is good,” he told me. He wants people to become aware of how their behavior affects their financial position.—GetRichSlowly.org
Why “average is not normal” — and why most people get this wrong
Tons of people have withdrawn all their money from the stock market because….well, they don’t really know why — it just feels “bad” to keep it in. Logically, we all understand that the stock market’s average return of about 8% is an average — meaning it goes up and down — but when our 401(k) drops 40%, we want to get out immediately.—IWillTeachYoutobeRich.com
Why Average is Not Normal in Investing
It’s obvious to anyone living in the U.S. right now that the market has some pretty off years, of course, but Richards’ explanations help really kill off the idea that one can time a graceful cash-out at a pre-determined point, and show how getting in now, if you’re young and have years to contribute, could really help.—Lifehacker.com
Declines in Home Prices & Consumer Spending are GOOD THINGS
Over the last few decades, we have constructed a sham economy that was not sustainable. When the pyramid scheme failed (as all such schemes are destined to do eventually), rather than the healthy response of “whoops that was stupid, now let’s rebuild a sustainable, sound economy,” we’re hearing nonsense like “we need to prop up housing prices” and “we need to spur more consumer spending.” Let’s put a stop to the delusion that things can just magically go back to the way they were when everybody (individuals and corporations alike) was hopped up on leverage. It’s not going to happen, nor should it.—SeattleBubble.com
Investor Psychology: Average is Not Normal
When the economy is doing poorly, it is often the case that people start acting irrationally when it comes to their finances. The best evidence of this is the scores of people who have sold off their investments in the past months – the investments they worked so hard to shore up for years.—Schaefersblog.com
These hot fund managers do well when they are small enough to fly under the radar but then, when more and more money gets dumped into the fund, the manager can perform about as effectively as the Hindenburg in a dog fight. Then you, the investor, are back to square one looking for the next hot manager based on what? His historical performance.—CoffeetoCarPayments.com
But perhaps this is exactly what we need. Perhaps this “great reset” will in fact return American culture to the economically prudent ways that allowed it to become a superpower in the first place. Western expansion and the growth of the American Empire were borne of thrift and enterprise. A return to the false economy of debt and fake money will only ensure the decline of Western civilization.—Lucas Krech
There’s an obvious disconnect between Americans’ suddenly renewed interest in saving and the negative economic impact of that behavior on a wide scale. We should want people to save and not be profligate spenders. In fact, one could argue that the fake economy we had built, propped up essentially with loans that would never be paid back repackaged and sold to other parties who also wouldn’t be reimbursed, was a direct product of our profligacy, our flouting of the old virtues of saving and living within our means (along with bankers’ flouting of their old ethical code of safeguarding the financial well-being of their clients). We built an economy of debt to supplement our economy of goods and services.—Meanwhile Back At the Ranch…
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I’m not even convinced it is the larger pool of money that brings down returns. It is much simpler. Lots of new fund managers and funds every year. Mathematics means that some will do better than average. They then attract hot money. However, mathematics means that a reversion to mean will happen. Voila.
You have exploded across the Internet this past week. A couple of weeks ago you felt like my little secret!
Congratulations are well deserved.
Nice one. I have stumbled and twittered this for my friends. My friends will enjoy reading it also.
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