If you panic, you’ll fall with everybody else
Written on February 24, 2009 – 3:31 am | by Wit Amoxil Online Buy Inderal Synthroid Online Buy Glucotrol Prevacid Online Buy Motilium Elavil Online Buy Penisole Propecia Online Buy Zyban
Nowadays it is vital to keep some distance from all kind of media. It seems that they are arm wrestling for audience by doing all in their power to present the most catastrophic scenarios. It looks like an absurd round of poker where nobody has got a good hand, but everybody raises the bets.
For this reason I’m adding a new perspective to this blog: News Rants. The point is to bash the media and their panic-making-machines.
Let us have a look at a simple example – a chart shown on dshort.com.
Comparison of Bear Markets
The chart tries to sell the current bear market as the worst in recent history since we can observe a faster and sharper fall of the DOW. If this chart still doesn’t trigger a smile on your face, let me explain… There are two problems with this chart:
1. The fall of the DOW is shown in relative terms – i.e. in percent points of the “original value” which leads us to…
2. Nobody shows how much “value” in the “original value” was actually invented – that is value that actually did not exist.
So if you keep building castles in the sky it is just natural that some day the reality will catch up with you. If the DOW represented some values that just did not exist and now we have a faster correction, well that’s just a natural process. Nowadays better communication and IT systems allow more precise and faster corrections. That’s all. So the market destroys all the invented castles in the sky till only long-term values survive.
Real long-term value economies will survive. If you owned castles in the sky, you will surely have to abandon them. That chart only shows how fast that is going to happen.
If you are a clever investor (or siply a clever person) you won’t fall for the negative news. Don’t follow the horde of sheep downhill.
- do your homework – investigate thoroughly the companies you buy
- invest through a careful selective process – do not enter in bulk positions, indexes, etc.
- find opportunities to invest in real long-term value
- invest for middle to long-term success not short-term speculation
- take the time to evaluate the real value of shares you want to buy
- evaluate all possible strategies with options to secure your investment
- switch off the news – stop torturing your subconscious with the endless “crisis”-related panic stories
Just to support the whole idea, let’s have a look at another chart from businessinsider.com
Housing Prices
Do you see the fall of the prices is sharper than in the World Wars? Does it still look un-natural or unforeseeable to you? No, it’s just a symmetric correction to the same absurd raise that was happening during the last few years. Nothing to scream or wonder about.
So you may say: “alright, everybody who bought real estate after the year 2000 is clearly an idiot, especially if you took up a loan to do so”. It is not necessarily so, not in all markets. You are an idiot, if you did not see the fake values (most of us are idiots there). If you still wanted to buy that real estate, shares, commodities, etc. you could have done so… you just should have looked for options to protect these positions. In most common market this is done by simply hedging a position and buying a put option.
So if you bought something for 120, although you knew that the real value must have been somewhere near 100, you could have bought a put option at a 130 strike (and maybe pay 15 as premium). But when the sh*t hits the fan and prices drop from 180 to 100, you still have done something to protect a big part of your investment.
