Fear & Greed

[trysail]

Fear..........................................................................................Greed
^​

Worldwide, lots of people are currently battling the age-old demons, FEAR and GREED.

I spent most of my career in a profession where, to be successful, it is absolutely imperative that one be as objective as is humanly possible. Throughout that career, I have found it necessary to consciously force myself to fight the forces of emotion. In fact, I take a certain amount of pride in saying: I hate greed— and I despise fear.

One of Sir Isaac Newton's most frequently cited aphorisms is:
"I can predict the motions of heavenly bodies but not the madness of crowds."

The now au courant John Maynard Keynes ( who lost a fortune through inadvisable speculation, then recouped it ) observed:
"Markets can remain irrational longer than you can stay solvent."

In the kind of economic environment that exists today, humans— being what we are— have a real tendency to allow emotions to overwhelm logic. It is, regrettably, human nature and our behavioral similarity to lemmings or schools of fish is ( to me ) occasionally terrifying. Panic is contagious.

The 24/7 media doesn't help. Anxiety-prone people hear nothing other than the latest doom and gloom all day and all night.

No one ( including myself ) is entirely immune. I find that I have to fight to keep from behaving in a manner that all my experience, training and logic tells me is irrational ( like "buying high, selling low" ).

Today, there are some folk out there who are in full blown panic mode. I now receive three emails a day from someone who is roughly my age; she is flat-out hysterical.

Over the years, we've all witnessed episodes of panic. More often than not, panicked humans accomplish nothing other than making the situation worse.

I find that lessons learned in other endeavors have proved helpful. As a youth prone to counter-productive, adrenalin-induced reactions to stimulus, I once had someone on a sailboat say to me, "The faster things happen, the more you should slow down." Those words have forever stuck with me. Whenever I feel pressure or anxiety arising from external events, I make a point of taking a deep breath and repeating those words to myself. There are times where doing nothing is the wisest course or, at the very least, a conscious effort to act very deliberately is a necessity.

So..., what lessons have you learned? What words of wisdom do you have for the panic-stricken? How do you cope with a world that occasionally goes mad? How do you behave when someone yells, "Fire!" in the movie theater?

 

[DeeZire]

What words of wisdom do you have for the panic-stricken?

Quit watching Fox News?

 

[JAMESBJOHNSON]

I learned hypnosis many years ago, so I do lotsa hypnotic interactions with me and others. And many of these interactions involve relaxation and teaching people how to trust themselves. Because most fear and anxiety are what we used to call 'runaway oscillation,' such as when a microphone squeals....too much internal feedback, too much internal information dumping in a short span of time.

Most of the shit we get crazy about never happens. Getting this fact across to anxious people is the key.

People can train themselves to filter non-essential internal information and become alert and sensitive to the right information.

 

[ishtat]

People can train themselves to filter non-essential internal information and become alert and sensitive to the right information.

I see, so we don't need an Iggy button.

 

[JAMESBJOHNSON]

I dont require one. Certain names alert me that their posts are likely to be inane twaddle.

 

[rengadeirishman]

i quit pissing and get pissed

 

[DesertPirate]

Vote against every incumbant at every level in every election. The politicians might figure out who's in charge. Then again they probably aren't smart enough to figure it out. Based on words and actions from Washington I truly wonder that if common sense was dynamite could the entire population inside the beltway generate enough force to blow a nose?

 

[trysail]

I find myself committing more and more capital to the proposition that "this, too, shall pass."

As my capitalist uncle once observed, "Through wars, depressions and upheavals, we've somehow always managed to muddle through."

In daunting times of the past— when all around me were convinced that the end was nigh— those words and that perspective have always served me well.

To be a capitalist requires a certain faith and optimism about the future in the face of uncertainty and pessimism— and a LOT of CONTRARY GUMPTION.

The four most dangerous words in investing:
"It's different this time."

Well, the U.S. has been in these kinds of situations before; the big difference this time is that the government's outstanding debt is reaching worrisome levels— levels not seen since the early 19th century when individual states essentially defaulted. That's when George Peabody spent a decade somehow managing to persuade our mainly English creditors to restructure our debts. Along the way, George Peabody hired a young fellow by the name of Morgan— and the rest is history.

It's a safe bet that roughly 98% of "investing America" has read Warren Buffett's latest "Letter To Shareholders." In fact, his prominence and stature have gotten to the point that it has occurs to me that he may no longer be able to write or speak freely. A couple of lines caught my eye ( i.e., to the effect that cash and Treasuries are no longer bargains ), as well. In fact, I think we'd all welcome a modest uptick in interest rates for all the reasons of which you are well aware.

Over the weekend, I exchanged a couple of emails with a former colleague, an economist now a professor residing in Switzerland. Like all of us, he's wrestling with the age-old demons: fear and greed. He was aware that AIG was likely to report yet another colossal "loss" and require more taxpayer money. This is what I wrote him:

The AIG story is not new "news" in the sense that it is known that a small number of lunatics in their London office ( led, appropriately, by a Drexel, Burnham alumnus by the name of Joseph Cassano ), motivated by a very perverse set of short-run financial incentives were instrumental in detonating the "financial weapon of mass destruction."

In his 2008 Letter To [ Berkshire Hathaway ] Shareholders, using a poker metaphor, WEB describes the Federal Reserve and the U.S. Treasury as being "all in." Extending the metaphor a bit, I submit that WE'RE ALL "all in." Berkshire's experience in disentangling itself from the land mine called General Re suggests that it is likely to be a decade or more before anyone gets to the bottom of the AIG cesspool. In the meantime, those still in possession of capital are going to face the daunting prospect of deciding if things have gotten so bad that you might as well place it (i.e., capital) at risk because if the outcome of this fiasco is the equivalent of Armageddon, it isn't going to do you much good anyway. The possibility of extreme outcomes will have people tearing their hair out attempting to discern whether to bet on the smoking wreckage of Armageddon or a "lesser-worst (?)," stimulus-induced hyperinflation ( a possibility explicitly uttered sotto voce by WEB in the letter ). Berkshire, most assuredly, by the fact of its very existence is— of course— a bet against Armageddon.

The last time I had lunch with _____[ a mutual friend], I couldn't help but kid him a bit with the suggestion that his outlook inevitably led one to conclude that the number of asset classes might need expansion to:
(I) Cash,
(II) Bonds,
(III) Stocks and
(IV) Guns, ammunition, bottled water, canned food and Ted Kaczynski's Montana cabin.

Let us all hope and pray that the proposed fourth asset class is the biggest loser of all in the coming decades.

As for my forecast? I only wish I knew. In reality, we're all blind men throwing darts.

All of us like to think there ought to be a way to put some kind of a range around a "bottom." Could things get worse? You bet. The massive monetary and fiscal stimulus that is currently being applied could easily result in roaring inflation. As those of us who experienced the '70s know all too well, once the inflation genie is out of the bottle, it's mighty difficult to get it back in.

There's an old expression that goes, "The history of government borrowing is really the history of government defaults." If the U.S. continues to be fiscally irresponsible and keeps spending like a drunken sailor ...

 

[amicus]

Reading this thread compells me to offer a comment as a derivation of the general content that I find disturbing and ill informed.

The tone is one of advocating mediocrity as a recommendation in one's investment, qua, life.

'Risk taking' young men are those the ladies flock to, and with reason.

They are dangerous...and...exciting. So too, can life be, and investment pyschology also, none of which Trysail seems to speak of.

Life is risk taking, so is the market, and 'start up', investment strategy, and it should be. Big risks for big rewards.

If you don't live that way, leave your money in a bank at a percent or so of interest annually.

There are those in this 'Bear Market', that will make their fortunes and depart the scene...that is as it should be, as there were those who rode the 'bubbles' of the past, took their profits and departed; that too, is as it should be.

Life and the market place are both and each, in their own way, 'dynamic' and, my friends, thas the stuff of life.

Doncha just love my heresy?



Amicus...

 

[Goldie Munro]

Reading this thread compells me to offer a comment as a derivation of the general content that I find disturbing and ill informed.

The tone is one of advocating mediocrity as a recommendation in one's investment, qua, life.

'Risk taking' young men are those the ladies flock to, and with reason.

They are dangerous...and...exciting. So too, can life be, and investment pyschology also, none of which Trysail seems to speak of.

Life is risk taking, so is the market, and 'start up', investment strategy, and it should be. Big risks for big rewards.

If you don't live that way, leave your money in a bank at a percent or so of interest annually.

There are those in this 'Bear Market', that will make their fortunes and depart the scene...that is as it should be, as there were those who rode the 'bubbles' of the past, took their profits and departed; that too, is as it should be.

Life and the market place are both and each, in their own way, 'dynamic' and, my friends, thas the stuff of life.

Doncha just love my heresy?



Amicus...

What heresy?

 

[bwallard]

History shows that there are times in which we discover that everything we've held to be true is false. Well -
"everything" is too strong, but "everything" in the sense that we see clearly that the world has shifted in a way that a clear perception requires that we reconfigure, reframe.

We've believed in perfection - again. Oh dear. And look at the mess we've made again.

 

[Dragonlipz]

Is the sky still falling?

I want to be sure......that no high flying capitalists (soaring on hubris and auto-erotic lust) fall on me......

 

[voluptuary_manque]

Consider this . . . both Buffet and Google are buying into geothermal power. Well?

 

[trysail]

It's been quite a year since the stock market ( measured by the S&P 500 ) hit bottom on 9 March, 2009.


On that date, the S&P closed at 676.53, down an amazing 48% from the 1293.37 registered exactly a year earlier on Friday, 7 March, 2008 and off an even more amazing 57% from the all-time high of 1576.09 of 11 October, 2007.


From last year's 9 March bottom to today's current level of 1143.77, the S&P 500 has provided a 69+% annual total return.


Even at today's level, the S&P remains 27% below its 2007 peak.

 

[JAMESBJOHNSON]

People oughta buy stock cuz a company made pussy better and cheaper to buy, or some company discovered how to make crack from used sanitary pads, or someone made a pill that makes Usual Suspects smart & lucid. Any other reason is the hallmark of a fool and your pension money.

 

[trysail]

An excerpt from the 1987 Annual Report of Berkshire Hathaway Corporation.
© Warren E. Buffett, 1987.
_________________________

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.


Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.


Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.


But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, "If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy."


Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising "Take two aspirins?"


The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben's Mr. Market concept firmly in mind.


Following Ben's teachings, Charlie and I let our marketable equities tell us by their operating results - not by their daily, or even yearly, price quotations - whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: "In the short run, the market is a voting machine but in the long run it is a weighing machine." The speed at which a business's success is recognized, furthermore, is not that important as long as the company's intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.


Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better.


We need to emphasize, however, that we do not sell holdings just because they have appreciated or because we have held them for a long time. (Of Wall Street maxims the most foolish may be "You can't go broke taking a profit.") We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.

 

[jomar]

I like the story of they guy who beat the market surrounding the housing crash - he has Asperger's and the emotional hysteria didn't register with him...all he saw was the data.

 

[Stella_Omega]

So..., what lessons have you learned? What words of wisdom do you have for the panic-stricken? How do you cope with a world that occasionally goes mad? How do you behave when someone yells, "Fire!" in the movie theater?


[/B][/FONT][/SIZE][/COLOR]

I tell them to stop trying to buy their security with pieces of green paper, because there are people who can buy more green paper than any of the rest of us, and therefore buy more of that kind of security.

They need to break out of the kind of objectivity that focuses on money, and get into a different kind of rationality. They need to understand that companionship and shared experiences are imperative to health, both physical and mental-- and to a healthy community.

And that, sometimes, there really IS a fire in the theater.

 

[trysail]

I like the story of they guy who beat the market surrounding the housing crash - he has Asperger's and the emotional hysteria didn't register with him...all he saw was the data.

There were very few heroes this go-round. He was one of 'em. I recall reading about him but confess that I've forgotten where the article appeared. It seems to me that Michael Lewis was the author of the story ( http://forum.literotica.com/showthread.php?t=625457 ). It may have appeared in Vanity Fair as part of the prepublication publicity for Lewis' now best-selling The Big Short.


Part of the reason that no large institutions will ever "beat the market" is their culture. They are incapable of tolerating mavericks. The number of people who— in the long run— "beat the market" is very small ( which is why Buffett advises people to index ). It requires a contrary bent, experience, training, education, guts and a dogged persistence in the face of consensus opinion. Very few cultures ( if any ) encourage that kind of behavior.


As my great teacher, mentor and guide once put it, "A good analyst'll spit in yer eye." There aren't too many places out there who employ spitting analysts.





ETA: Ayuh, it was Vanity Fair: http://www.portfolio.com/news-marke...folio/2008/11/11/The-End-of-Wall-Streets-Boom

 

[trysail]

I tell them to stop trying to buy their security with pieces of green paper, because there are people who can buy more green paper than any of the rest of us, and therefore buy more of that kind of security.

They need to break out of the kind of objectivity that focuses on money, and get into a different kind of rationality. They need to understand that companionship and shared experiences are imperative to health, both physical and mental-- and to a healthy community.

And that, sometimes, there really IS a fire in the theater.

Money isn't everything Stella. A healthy and well-balanced person knows that. Some of the rich folk I know are among the unhappiest people around.

 

[Stella_Omega]

Money isn't everything Stella. A healthy and well-balanced person knows that. Some of the rich folk I know are among the unhappiest people around.[/COLOR][/SIZE][/FONT][/B]

Yeah, those bits of green paper can be mighty debilitating. They can clog the arteries of friendship and block the glands of happiness.

Any of these unhappy rich people want to invest in American primary manufacturing, aimed at sports and medicine?

Their money could buy them a bit of purpose, excitement, exercise. They would have the chance to hobnob with Ice Hockey greats past, present, and future, and famous orthopedic surgeons, too.

 

[Miss_Pixie]

My Brother told me this when he was drunk and it's served me well...

Treat every situaton like a dog would... If you can't Eat it, Chew on it, or Hump it...Piss on it and WALK AWAY

 

[jomar]

There were very few heroes this go-round. He was one of 'em. I recall reading about him but confess that I've forgotten where the article appeared. It seems to me that Michael Lewis was the author of the story ( http://forum.literotica.com/showthread.php?t=625457 ). It may have appeared in Vanity Fair as part of the prepublication publicity for Lewis' now best-selling The Big Short.


Part of the reason that no large institutions will ever "beat the market" is their culture. They are incapable of tolerating mavericks. The number of people who— in the long run— "beat the market" is very small ( which is why Buffett advises people to index ). It requires a contrary bent, experience, training, education, guts and a dogged persistence in the face of consensus opinion. Very few cultures ( if any ) encourage that kind of behavior.


As my great teacher, mentor and guide once put it, "A good analyst'll spit in yer eye." There aren't too many places out there who employ spitting analysts.

NPR had an excellent piece on a shark firm that spotted the weaknesses in the housing market. Named Quasar, Dark Star, Black Hole or something stellar, they became a huge player and exploited the market and sought and pushed for increasingly risky funds. They insured the investment against failure, guaranteeing they'd make more money if the investment failed, which they manipulated into happening. To hear the piece, this firm was instrumental in ramping up the crash, but also was doing what business does - making money at all costs and damn the consequences.

 

[amicus]

Jumpin' Jehosofat! (I might have misspelled that...never typed it before)

Those little green bills are no different than seashells or nutpods that early man used to trade.

No doubt a few aborigines were obsessed with accumulating as many of those shells and nuts as possible...such is life.

In essence, quoting Rand, '"money is the root of all good..."; she said that with good reason as the method of exchange is a measure of an individuals ability to sustain himself.

Further defined, it is the individuals ability and desire to culture a skill or a knowledge of value to all, which intrinsically holds value and worth.

For all you bleeding hearts who use the blind and the deaf and the lame as excuses to extort wealth from all, don't worry, we always take care of our own, we don't need you...but thanks anyway.

Amicus Veritas

 

[TE999]

Al Einstein once remarked that the miracle of compound interest was the most impressive thing he knew of...or words to that effect.

Establishing a diversified portfolio of no-load mutual funds, buying more shares when you can and sticking with it no matter what the financial panic of the week is will see you considerably better off in the long run.

Stock trading is like playing hopscotch in a mine field...you're fine until you make a wrong move.