Post #139 - People Never Learn

Part 6: Let’s emphasize the important stuff (cont.)

Always remember that people never learn from history.  This will help you in your quest not to die poor.

People are not going to stop consuming just because the financial world almost melted down in 2008-2009.  In a year or so, they will forget about what happened and resume spending above their means.  Only a small percentage of the population has what it takes to live simply.  This is good news for you.  If everyone else acts like a fool, you can do pretty well by doing things right.  It would be a lot harder for you to make money with your investments if the rest of the world were as smart as Warren Buffett.

There will always be booms and busts.  In the next forty years we will see a few more bubbles.  And those bubbles will burst.  Why?

• Because bankers are throwing so much money at Congress that meaningful reform will not happen.
• Because investment professionals will always be there, selling you products that you don’t understand and which may have hidden downsides.
• Because investors get carried away.  They get caught up in a rising market and push it way past where it should be.  Then they panic and it comes crashing down, much lower than where it should have landed.

The best thing to do is ride the wave.  Save, invest, rebalance, and stick with your plan.  Do that through up periods and down periods.  Rebalancing acts as a brake.  It slows you down from moving toward the edge of a stock bubble.  You won’t avoid damage when the bubble bursts, but your damage will be less severe.  And when the market sinks to its low point, rebalancing will help you get back in before other people have the guts.

How many people bought stocks when the Dow was down at 7000 last February?  Not too many.  Those same people were falling all over themselves to buy at 11,000 in April.  Then everything hit the fan again the people who bought at 11,000 are crying.

Of course, not everyone rebalanced in March 2009, and March 2010, which would have been really good times to do so.  I rebalanced in January of both years, which wasn’t an optimal time.  But I still did better than those who don’t practice rebalancing (which is most everyone else).  And that’s the point.

People will continue to hate each other.   Each year, there will be some war or other being fought somewhere.  Maybe multiple conflicts.  But that the trend has been away from global wars toward local fights.  This is a sign that the world is getting better.   Good news for investors.