Nobody Knows Anything
by Richard
That’s what William Goldman, the legendary screenwriter, said about Hollywood movies in his book “Adventures in the Screen Trade
He wasn’t referring to any inherent stupidity among studio executives…rather he simply pointed out that no one knew upon release of a new movie how successful it would ultimately be.
And so it is with markets and economies.
From time to time I’ll watch the talking heads on the cable business channels until the babble becomes intolerable.
There must be some unwritten programming rule that guest commentators…
- Hold diametrically opposed opinions.
- Shout out and interrupt the other guy(s), so that only the loudest and rudest bully is the one being heard.
It’s like Wrestle Mania with suits. A reflection of our times and tastes.
And none of them can consistently forecast future markets. Like a stopped clock, they may be intermittently on target…but that’s nothing to take to the bank.
You may hear persuasive arguments that the rescues and bailouts are absolutely essential to restoring trust in our markets.
Or that these interventions are destroying the very fabric of our free market economy.
Loyal readers will know that I fall in the latter camp… but I would love to be proven dead wrong.
So I fall back on philosophy to rationalize my behavior. Specifically…
Pascal’s Wager
From Wikipedia:
Pascal’s Wager (or Pascal’s Gambit) is a suggestion posed by the French philosopher Blaise Pascal that even though the existence of God cannot be determined through reason, a person should “wager” as though God exists, because so living has everything to gain, and nothing to lose. It was set out in note 233 of his Pensées, a posthumously published collection of notes made by Pascal in his last years as he worked on a treatise on Christian apologetics.Historically, Pascal’s Wager was groundbreaking as it had charted new territory in probability theory, was one of the first attempts to make use of the concept of infinity, marked the first formal use of decision theory, and anticipated the future philosophies of pragmatism and voluntarism.
You need only substitute “the market” for “the existence of God”, to help make this shoe fit.
My family and clients are staying invested, in essence, placing a wager that there is more to gain than to lose as we anticipate recovery in the markets.
If history once again rides high in the saddle, and the needle dials back to the center, as it always has, we will bounce back to prosperity.
And if our wager is misplaced…and instead the end of days has begun, and we totally abandon the precepts of private property and the contractual rule of law….
Let’s just not go there for now.
February 8th, 2009 at 1:51 pm
In truth, I’m on the fence about the bailouts. In theory, I see the need and how they work; however, in practice, I’m afraid our government has yet to implement them in such a way as to be beneficial to our economy.
That said, our markets are cyclical. If you look back over the last 50 years, you’ll see that the market does go up and sometimes way down. But, the point is, investments are meant to be long-term. Over the long-term, those investments with their ups and downs have made money. But, you only make the money by being invested when the market comes back up. People trying to predict and time the market are doing themselves a disservice because the reality is, you just never know.
For myself, I’m staying where I’m at in my investments. I re-evaluate my portfolio every 6 months based on where I am in my goals and life, not necessarily what’s going on in the market. Of course, my strategy is somewhat aggressive at the moment, which I’ve been criticized for, but here’s the thing. I’m 27 years old. I have PLENTY of time to make any money I’ve lost back, which by the way has not been an Earth-shattering amount. I have faith that the markets will bounce back, so I will let my strategy hold for now.
Great post Richard!
February 9th, 2009 at 12:24 am
[…] - Richard @ Blue Jeans Millionaire has a great perspective on the stock market, no one knows anything! […]
February 9th, 2009 at 9:03 am
Kristy, you are absolutely right when you point out the advantage of being young, and having decades to recover. We will always have off years in the market, but in rolling ten and twenty year cycles, the smoothing effect takes place, and equities outpace fixed income.
btw, I checked out your blog. Lots and lots of useful tips on how to make the plastic work for you. In our family, we use the Barclay’s card linked to Frontier Airlines, which rings up a free RT ticket on just 15,000 miles. We rack up at least two free awards each year.
Money for nothin’
Richard
February 9th, 2009 at 11:02 pm
Richard,
Thanks for checking out the site! Initially when Jonathan started the site, we were strictly focused on making the plastic work for you, but we’ve expanded into other personal finance topics as well. Jonathan does the credit card reviews, so I’ll pass along the Barclay card and see what he comes up with!