Here's a question I have always found vexing:
Why do so many intelligent people act so irrationally with their investments? It turns out that we may be programmed to do so.
According to an article in the Wall Street Journal, an MRI of the brains of investors chasing stock returns is the same as those anticipating a chocolate truffle, sex or (for drug addicts) cocaine!
Researchers in neuroeconomics have found that our brains are programmed to look for patterns. When we find one (or even the prospect of one) the neurochemical dopamine kicks in with the equivalent of a shot of heroin to the brain. We are almost compelled to take risks, even though a dispassionate view of the data would indicate that we are investing irrationally.
This process also affects investor behavior in uncertain times, like those we are currently experiencing. Even a hint of bad news will cause our brains generate a sense of "anxiety and dread" driving investors to overreact.
For more studies about these issues, I highly recommend Jason's Zweig's excellent book, Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.
Brokers and the financial media understand this process. How else can you explain the popularity of live TV shots showing the frenetic activity on the floor of the NYSE, when this background is irrelevant to most investors? Or the high testosterone personalities of financial pundits and many brokers, who breathlessly report on financial news, or call to give investors the latest "hot tip" on the short term prospects of a stock or the next top performing mutual fund?
Those who study finance regard these activities as counter-productive and calculated to enhance the wealth of the securities industry and deplete the assets of investors. Most investors need no reminder that this is precisely the way the system has been working -- and most likely will continue to do so in the future.
Perhaps investors need the equivalent of drug rehabilitation to reprogram their brains so they can rationally assess the overwhelming data indicating that reliance on the traditional securities industry for investment advice is no different than relying on a drug dealer for advice about kicking a drug habit.
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Rather than disinvest, change the rules. Require all health insurance companies to provide basic health care insurance to everyone, reimbursing doctors via common rates per type of medical service, with 100% coverage, no refusals or pre-existing condition rejections allowed, and open up each state to national competition. Single-payer goes against the grain in the U.S., but you can accomplish the same thing with a multi-payer system, other countries have done it successfully.
Investing can be simple. Now, M. Lynch/Ameriprise got me also, years ago, and sucked me dry of any returns... but I learned. Buy index funds from Vanguard, all you need is 4 or 5 funds to get solid diversification, and use an on-line asset allocator to guide you. Diversified investors did ok in the crash & rebound. 7-8% returns are fine. You don't get rich investing, you secure a funded retirement. I've been through two crashes, investing for 16 years in my 401K, and my long term returns are about 8% annually compounded after fees. I realize that most 401K's suck (really, mine is one of the few good ones) so invest via Vanguard. You can do it too. Don't hide, don't give up, take control and build your future.
the market will crash soon, just a question of when....if you buy stocks now, you are going to get burned.
Look at stocks. Most people get excited when they go up. They should be excited when they go DOWN. Even IF they own a few hundred shares - why? Because that allows them to buy more shares, collect more dividends and own a greater % of the company.
Your typical American thinks AAPl going from $200 to $220 is awesome because they made $10K. Great. Take away 15% in taxes, and you're down to $8,500. Meanwhile, the millionaire who owns 250K shares of AAPL just made a cool $500K.
Not only that! But in the past year - while stocks are up 65% from the March low point, oil, gas, food have all risen dramatically as well. If you made anything less than $50K in this market, you'll eventually give it all back and more over time by paying more for gas, heat, oil, food etc.