Andre J. Peschong

Fear and greed are the only two motivations for action when playing in the arena known as Wall Street.  Fear of losing money or missing an opportunity, or just fear of making the wrong decision.  Greed is an all motivating factor just as Gordon Gecko said in the famous movie Wall Street “The point is, ladies and gentleman, that greed — for lack of a better word — is good, greed is right, greed works.  Greed clarifies, cuts through, and captures the essence of the evolutionary spirit”.  This yin and yang is played out daily not only on Wall Street but also our lives.  Fear and greed are substantial motivating factors similar to a fight or flight response when faced with a stressful situation (i.e. the economy.)

Let’s go back about 4 years ago to any and all business sections, front pages and even in the local sections of any newspaper across the country.  Real estate was the hottest topic for discussion.  Prices were going up in some areas by double digits per year; people were all trying to get a slice of the American dream before they were unable to afford it.  Speculators were running rampant, extending themselves well beyond rational means based solely on the premise that prices would keep rising.    Interest rates were relatively low and the lending institutions, coupled with cheap money, synthetic loan products (negative amortization) and no lending standards to speak of were creating a buying frenzy.  The beating of the drum got progressively louder and faster, so much so that the public believed that if they didn’t buy in they would miss the real estate gravy train.  There were experts, pundits, and talking heads opining on how great this market was and the fact that real estate, unlike the technology bubble, was tangible, not based upon arbitrary valuations manufactured by Wall Street wizards.  There was not a doomsayer to be found, not even Alan Greenspan touting irrational exuberance.  The new found wealth and home equity piggy banks that consumers were using to pump up the economy kept the speculation going to ever higher levels. Then the music suddenly stopped with the subprime explosion and there were no chairs left, just the feeling of bewilderment.  Since that moment, roughly in the summer of 2007, there has only been a sense of complete doom and gloom with not an optimist to be found.  Why did we have to learn this lesson over again? Shouldn’t the stock market bubble have taught us something? It’s a simple answer: people, for the most part, participate in the herd mentality which is based on what they see, hear and read.  This, in my opinion, only exacerbates the current market volatility.  If people believe that prices are headed even lower they will wait to purchase as they do not want to try and catch a falling knife, which in essence becomes a self fulfilling prophecy.  There are some easy lessons that can be applied with any irrational market movement, be it up or down.  The first is you will never buy the bottom and sell the top of the market.  If you can just be within 10% to 15% of the top or bottom you are doing extremely well.  Second, if it seems unrealistic or that valuations do not make sense then it is best to step away from the market or become very selective. Third, is if you do not truly understand what you are investing in then don’t do it.  Last but certainly not least, use common sense, something that is easier said than done. 

And remember, it is never as good as you think it is and conversely it is never as bad either… 

Bookmark It

Hide Sites