Market Thinking: Unwarranted Optimism
Posted by mapgirl under Investing, Psychology
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I keep telling myself that what goes down must go up….right?! -SavingDiva
Sadly, no. The market doesn’t have to do anything. You’re applying the law of gravity to something dependent on the rationality or the irrationality of human beings. Physics and Investing only have high end mathematics in common. Even so, investing can be completely subverted by crazy investors. (”Irrational exuberance” anyone?)
What you really need to do is stop and assess what is happening to your investments and why. I ask myself this stuff all the time.
Am I in solid investments that will really rebound in the next 5 years? Or will they stay flat or take a turn for the worse?
Am I in it for the long haul? If so, is this just a minor road bump or a major impasse?
I kept thinking that “what must go down must go up” during the dot-com boom years and quite horrifically, I was mistaken. I lost my proverbial shirt in the process and about $4K. Luckily, time was on my side and I’ve only recovered by doing a lot of savings.
One thing I’ll tell anyone is that selling means you’ll never make money again on that investment. You’ve locked in your losses by selling. But if you’re alternative investment is a winner, maybe that’s not so bad. That’s the reasoning behind selling off crap investments in my old 401k and shifting it to BRK.B. If I had dumped it all in pink sheet stocks, that would have been a disaster. (As it is, I’m now holding TXN and GE in long positions. Not too much, just swept up what cash was leftover from the BRK.B buy.)
In reply to Andrew and Mrs. Micah’ comments about BRK.B and how much to buy, FWIW I’m holding 70% of my investment portfolio those shares. I know that is a crazy amount, but Berkshire Hathaway does not sell its investments, so it’s akin almost to holding a specialized industry index fund, so I do not look upon it as an active trading portfolio investment. Therefore it’s in that 90% I let other people manage, which is the same advice Mr. Buffett recommends. I know that’s a bit crazy to hold so much of any one thing, but I’m putting away regular 401k savings and that should eventually even things out over time. I don’t plan on buying any more Berkshire Hathaway stock, not even the A shares.


