Tuesday, October 5, 2010

TYPICAL STOCK MENTALITY

I was at the dentist yesterday and happened to mention that I am now more involved in the provision of financial services for a living and not just in the music industry as I have been for the past 35 years. I was telling him that songwriting comes in many forms, and singing to the tune of "Broke" was not in my cards. Often, in the music industry, we scratch our heads and wonder how some piece of crap song makes it to the top of the charts...and every single time, we learn that a very strategic finacial marketing plan was put into place. So whether we are selling a band, a song or our spouses on our financial plan to retire with, it undoubtedly requires proper planning. People don't fail, they fail to plan...and such is the case with my dentist as I came to learn from this short session with him.

Within moments the dentist started ranting about how his portfolio has been flattened in the 2009 recession.

And he was "done with the stock market for good."

In fact, this guy went even further saying he moved all of his assets
into bonds.

His reasoning was so backward, I actually started to worry that someone so irrational was operating on my gums.

But naturally I was curious.

The pattern the doctor followed, is typical of the average "stock market loser".

The investor who moves with the rest of the sheep.

Euphorically buying stocks at the height of a bubble... And irrationally selling stocks at the absolute bottom.

But this guy went even further. He sold his stocks at the crux of the recession and moved them into bonds. Obviously thinking this was the
safe and sensible option. But he bought bonds at probably one of the worst times in history.

In coming years as interest rates rise so will bond yields.

And of course, the price of his new portfolio of 3% bonds will fall to bring the effective yield up to the market interest rate.

But, forgive me I digress. What amazed me was this intelligent well educated man made a catastrophic string of mistakes.

Buying when stocks are irrationally expensive, selling when they're irrationally cheap and then...

To top it off, he pushed his dwindling chip stack into yet another bad investment.

How did this happen?

Human nature.

It's human nature to follow the crowd. Every fund manager owns Cisco...

Because if Cisco suddenly drops his boss will remark "What is wrong with Cisco?"

If Mr. Fund Manager is invested in ABC Widget Co. and it also drops...

The boss will instead shout "What the wrong with you?"

Getting rich from the stock market is easy you just need to accept a
few universal truths.

The capitalist system is a trong one.

I don't believe it will ever fail.

The profit motive behind capitalism will forever drive forward innovation
and thus the stock market.

As companies innovate and resources are put to better & better use...

The stock market and the wealth of investors will follow.

Since the start of capitalism the economy has moved in a boom and bust cycle.

When things look bleakest... When CNBC anchors are predicting the end of the world...

This is your signal to get in.

As the stock market rides up making up for past losses - The "stupid money" is still sitting on the sidelines licking their wounds.

Finally... As the stock market recovers all the losses and forges ahead reaching new highs... Finally the common man comes round to the idea of investing again.

At this point stocks are overpriced.

Investors are forecasting a new age of ever increasing earnings.

At this point the smart money sits out.

When your next door neighbour is giving you financial advice - Run back inside and sell everything.

My point is: Right now the DOW is at 10,750 points.

Before the recession the DOW peaked at 14,000.

Sentiment amongst investors is overall bullish, but nowhere near euphoric.

This is because we are still making up for the drop from 14,000.

It's a foregone conclusion that in the near future the DOW will once
again reach 14,000.

At that stage, as the DOW forges ahead to 15,000 and higher... That's
when to sit out.

If you haven't ridden the economic recovery so far... it's far from over.

And the longer you wait. The closer we get to a 14,000+ DOW - The less
opportunities that will be available.

We at Primerica understand the trends that have taken place even before the Great Depression. The ride is a real as a roller coaster. Proper planning and understanding of the trens, adequate protection of our assets provide for a much better result for our retirements. We can help, we have helped and we will continue to help thousands of American families weather the storms as they rise and fall. Get a FREE financial analysis of what is happening in your life right now...get a vision of how to weather the storms. There are no surprises with Primerica...just solutions.

Many of you know I have spent 35 years in the entertainment industry developing financial plans to launch music careers of some of the most popular bands in the world. Financial planning is not the same everywhere. KNOWLEDGE IS NOT POWER as is ofetn quoted by APPLIED knowledge is indeed powersul. I know a lot a smart folks that caught caught in this storm.

Email me here if you need help.

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