Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
SanDisk Ultra 128gb 100mbs Micro SD Card for Smartphone's Speed Test - 15th Dec 17
Inflation is Spiking Globally… Bond Bubble Bursts in 3… 2… - 15th Dec 17
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17
Bitcoin Doesn’t Exist – Putting the Banks Out of Business - 9th Dec 17
China’s Struggle for Market Economy Status - 9th Dec 17
Is Gold Really Strong? - 9th Dec 17
Bitcoin Parabolic Mania - 8th Dec 17
SPX Make a 61.8% Retracement - 8th Dec 17
Gold, Stocks and Bonds - The 3 Amigos Update - 8th Dec 17
Gold Stocks Break, Gold to Follow - 8th Dec 17
4 Charts That Show How Trump Tax Cuts Will Trigger A Recession - 8th Dec 17
Precious Metals Breaking Down! 3 Amigos to Abort? 4 Horsemen to Ride? - 7th Dec 17
Bitcoin Just Smashed Through $12k… Wait, $13k… Now $14k… This Is Getting Ridiculous! - 7th Dec 17
Stock Market Tops Look Like This - 7th Dec 17
Crude Oil, Oil Stocks and Invalidation of Breakouts - 7th Dec 17
Bitcoin Doesn’t Exist – 2 - 7th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

This Time Is Different - 4 Words That Broke Many Investors

InvestorEducation / Trader Psychology Mar 10, 2017 - 06:29 PM GMT

By: John_Mauldin

InvestorEducation

BY PATRICK WATSON : Four little words may have cost more investors more money than anything else in stock market history: This time is different.

Granted, in a sense, every time is different. History never repeats itself in exactly the same way, but it can certainly rhyme.


Market cycles exist because our fundamental human qualities don’t change. Fear and greed have been with us a very long time.

Those two emotions are behind most investment mistakes—and we’ve never been able to eliminate them. At best, we can suppress them for short periods of time.

Eliminating Emotions Is Not Enough

For instance, you may have seen this Nasdaq Composite Index chart I shared in a recent issue of Connecting the Dots (subscribe here for free). March 2000 was the high point from which it collapsed into what we now call the dot-com crash.

Even today, it’s startling to recall how fast the market unraveled back then. I remember it pretty well—and it wasn’t pleasant.

I was working at a commodity and hedge fund management company here in Texas. We had a leveraged stock index futures fund that had been going gangbusters. It doubled in 1999 and was on the way to doing it again in early 2000.

The trader who ran this fund for us was a very systematic guy. He had built software that told him to be long or short and how much leverage to use. The box said buy or sell, and he would buy or sell. It had been working well for years—we all thought it was great because emotions didn’t get in the way.

Ahead of the big crash you see in the chart above, the box had said to buy. He did—with 3X leverage—at the very top of the market.

Needless to say, it was a bad week at the office. We fired the trader and his magic box, then tried to pick up the pieces.

That tells us that while eliminating emotions from your decision making is good, sometimes it’s not enough.

Maybe This Time Really Is Different?

The world can change fast… but even digital trading systems presume that the future will resemble the past.

I’ve been wrestling with this since the election. The market’s bullish reaction to Trump’s victory was remarkable, but as I said last month, I think people got a little too optimistic. That’s probably why stocks leveled off in the first part of January.

Conventional wisdom in the investment business is that you shouldn’t let politics affect your thinking.

So far, that’s been good advice. Even presidents are hostage to larger economic forces. I believe they usually get too much credit for the good times and too much blame for the bad times.

And yet… this time really does seem different.

Certainly, we’ve never had a president like Donald Trump. If the reforms he has promised really materialize, we are looking at huge changes in…

Well, people have long said we should run government like a business. We’re about to find out how that theory works in practice.

Add to that the other domestic and global issues we face…

  • The possibility of one or more interest rate hikes by the Federal Reserve
  • China’s attempts to reduce export dependency and build a self-sustaining domestic economy
  • The European Union’s risk of losing the UK and potentially other countries
  • Italy’s bank crisis, which threatens the Eurozone’s continued viability
  • The Middle East in ongoing turmoil

…and it’s pretty clear that we could see some giant changes in the next few months.

The problem is, we don’t know what they will look like, which tells me caution is still the best policy—whether this time is different or not.

Subscribe to Connecting the Dots—and Get a Glimpse of the Future

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife