A terrible threat created by terrible decision-making<\/strong><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nWhat is perhaps the greatest risk to individual investors these days?<\/p>\n
Is it the potential for a decline in corporate earnings based on a slowing global economy?\u00a0 Is it that current valuation levels in both equities and fixed income instruments are much nearer historic highs than not? Is the biggest risk a US Fed that will soon raise interest rates for the first time in close to a decade?<\/p>\n
Although all of these are specific investment risks we face in the current cycle, my contention is that the single largest risk to investors is a risk that has been present since the beginning of what we have come to know as modern financial markets.\u00a0 The single largest risk to investors is\u00a0themselves<\/em>.\u00a0 By that, I mean the influence of human emotion and psychology in decision making.<\/p>\nWe Are Our Own Worst Enemies<\/h2>\n
After many years of managing through market cycles, it seems pretty clear to me that humans are uniquely wired incorrectly for long-term investment success.\u00a0 When asset prices double, we want those assets twice as bad. When asset prices drop in half, we want nothing to do with them. Isn\u2019t this exactly what we saw in US residential real estate markets a decade ago?\u00a0 Isn\u2019t this what we experienced with the rise in dot-com stocks in 1999 and their demise over the three following years?\u00a0 Human decision making shapes the rhythmic bull and bear market character of asset prices. We know the two most prominent emotions that drive markets higher and lower are those of fear and greed.<\/p>\n
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If we turn the clock back far enough in early human history, we know that humans ran in packs.\u00a0 Strength and protection was found in a pack or herd.\u00a0 It was when humans ventured away from the protection of the herd (consensus thinking) that they were physically vulnerable.\u00a0 The fight or flight mechanism has been an integral part of human development over time.<\/span><\/p>\n…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"
The Margin Debt Time-Bomb A terrible threat created by terrible decision-making What is perhaps the greatest risk to individual investors these days? Is it the potential for a decline in corporate earnings based on a slowing global economy?\u00a0 Is it that current valuation levels in both equities and fixed income instruments are much nearer historic […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[303,305,4190,4426,501,2218,690,8706,8707],"class_list":["post-11847","post","type-post","status-publish","format-standard","hentry","category-economics","tag-fed","tag-federal-reserve","tag-investing","tag-margin-debt","tag-market-crash","tag-peak-prosperity","tag-risk","tag-time-bomb","tag-us-fed"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/11847","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11847"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/11847\/revisions"}],"predecessor-version":[{"id":11848,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/11847\/revisions\/11848"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11847"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11847"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11847"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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