Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Mainstream Media Feeding Frenzy in the Echo Chamber - 28th Jun 17
The Fed Has Undermined the US Economy’s Ability to Grow - 28th Jun 17
“Secular Stagnation” Is Nonsense… Here’s the Real Reason Behind the US Downturn - 28th Jun 17
Sheffield Broomhall Hanover Flats Tower Block Cladding Could Take Months to Remove! - 28th Jun 17
Shrinkflation In UK – Real Inflation Much Higher Than Reported - 28th Jun 17
Are the UK Elections a Forgone Conclusion? - 28th Jun 17
Is the Tech Stock Market Bloodbath is Finally Here? - 28th Jun 17
Crude Oil Sinks 20%: Why "Oversupply" Isn't the Half of It - 28th Jun 17
Important Money Management Tips For Teenagers - 28th Jun 17
The Coming Battery Bonanza - 28th Jun 17
Overlooked Stock Investments To Keep An Eye On in 2017 - 27th Jun 17
The Federal Reserve And Drug Addiction – A Prediction - 27th Jun 17
Charts Show Why Emerging Markets Will Be an Essential Part of Your Portfolio Going Forward - 27th Jun 17
Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year - 27th Jun 17
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

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

© 2005-2017 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