Today we talk of inflation, financial bubbles and unsustainable run ups of stock prices. Yet, where was talk of this terminology a quarter century ago? Robert J. Samuelson an opinion writer for the Washington Post, said in a recent opinion piece that 25 years ago, the word bubble was never applied to equities.
Yet, it’s useful for investors to understand what inflates the succession of bubbles we see today. After all, few would deny that we seem to be mired in an ethos that dictates emotional responses to financial markets as the rule of the day.
Why is that? It can be summed up in this maxim: Dreams die hard. We have an innate desire to see life on the sunny side, although we would strongly deny it, if we were pressed on the matter.
Belief is likely one of the strongest forces on earth. And the way we form beliefs is far from scientific. We come to investment strategy often with various beliefs that fuel emotional responses, not logical ones. Our facts are fuzzy; our penchant for emotionalism easily turned to exuberance or fear.
There’s only one road that offers true clarity in the world of equities and investments. What is that pathway to logical investing? Science. Factual-based evidence is never wrong. It may be incomplete and often is, saved for the dedicated sleuth who fills in the picture. But a fact is a fact. It’s quantifiable.
When it comes to managing equities, clarity is the key to prosperity. If you take the time to see stock-buying trends graphed out in the form of dips and rises, you will have clarity. You will see the raw, collective emotions that are driving the markets. And, you will wait … you will wait for that opportune moment when the mood on the streets gives you a clear signal of where stocks are going.
Many miss that signal, because they are too engaged; too filled with optimism that has nothing to hold it up but emotion. They sell when they should buy and buy when they should sell. If you’ve been pulled to and fro on how to best manage your financial portfolio, maybe it’s time to learn the lessons in wave science.