The table above paints a stark picture of investment trends since the recession began. Despite the fact that the 30 year bull market in bonds is nearing its inevitable end, the investor herd has flocked to them in an attempt to invest in anything other than stocks. While our fears of the stock market are warranted given the last 10 years of highly volatile investment performance, it does not make the decision to hole up in bonds any more rational.
As the stock market continues one of the most powerful ascents in history, the average investor is still listening to the media report frightening unemployment figures and weak housing starts. While concerns about the health of the economy are very real, listening to daily fear mongering yields nothing except frayed nerves.
Most lamentable, though, is the missed opportunity for those who fled from the stock market at the worst possible time and have been too fearful to reenter. In the waning months of 2008, advisors and financial experts offered conflicting recommendations.
The video clip from October features Jim Cramer, host of CNBC’s Mad Money, advising Americans to immediately withdraw any short-term investments from the stock market.
Shortly thereafter, in November, I appeared on WDSU news counseling investors to stay the course and wait for the market to rebound.
Hearing the dire urgency in Mr. Cramer’s warning and the theatrical response of the today show host reminds me to caution my readers once more about the dangers of emotion-driven decision making. While alarmist tactics may score high ratings on television, in real life, reasoned, calm advice is always the better option. Let the chart above stand as a humble reminder of the dangers of following the herd and engaging in emotion-driven decision making.
Most of us know that we need some level of protection in our lives. The first step to becoming a more successful investor is figuring out that the best investments in the world are of little use to the investor who cannot get out of his or her own way. Like the child hiding under the covers out of fear of the monster in the room, we are only safe if the monster is not hiding under those covers with us.