Reality Check: The Wild Mood Swings of Wall Street [and investors]

I tend to look at numbers to see as the evidence behind the "words" being spoken. Now there are lots of people that can create spreadsheets and graphics -- using numbers that prove their point. If truth be told, it happens a lot in the business world. I'm not saying there is truly an attempt to lie, but there is plenty of grey to mislead [or point in a direction that is not entirely true].

So, I decided to take a look at market data -- for the most recent peaks and valleys on the Dow Jones Industrial Average [DJIA]. Now some people will say that only looking at those companies provides a false picture -- well my come back is that only looking at Publicly Traded companies, on any exchange provides a false picture. BECAUSE, the majority of businesses out there are privately owned - with no way to determine their "value". That being said, here is what I found out [please understand, my numbers may not be exactly correct, but they are within rounding error correct]...

Starting with the peak in 1987, we have had three bottoms [Dec 87, Sep 02, Oct 08] - each one of those bottoms has gotten successively worse -- with declines from the high of 26%, 32% and now standing at 40%. Now the peaks [starting with Sep 87], there are two [Dec 99 and Oct 07] and each of those has reached new "highs" for the DJIA - 2,525, 11,406 and 14,164. In general, both up and down cycle [which I'm beginning to think of as Greed and Fear cycles] are in general getting shorter -- and they are much shorter if you look at it from the perspective of 75 or more years of data [but I didn't feel like putting together a doctoral thesis here].

So, what's my basic conclusion?

1. That Wall Street and Investors need to take some anti-depressants, because the Manic-Depressive cycles are getting much worse. If our financial market was a person, they would be committed by now. Living within the confines of a hospital, so they couldn't hurt themselves or someone else. They would also be heavily medicated.

2. Technology is as much to blame as emotion. The "rules and regulations" that rule the financial markets can not keep up with technology and the speed at which transactions happen. The smallest of investors have immediate information at their fingertips - they have the ability to make instantaneous trades, they have access to trading markets that just a few years ago would have been impossible. There are "wiz kids" out there creating "financial products" that are so weird and bizarre, that they are the only ones that truly understand them - and these new products take advantage of technology in such a way that everything can happen automatically.

3. That everyone is to blame for the current cycle of Greed. We all colluded to create this mess -- worldwide. We are not longer talking about something that is going to affect one "industry" or one "region" -- this current situation is going to force many people to totally rewrite their concept of wealth and prosperity. Building your future on Debt - is a dangerous thing. It's not unlike getting yourself overweight. Financial health will happen at a very personal level, regardless of what Governments do, many people will just stop spending money they don't have and start "loosing weight". This is diet time - regardless of any external influences [like government, like banking offers, like new car offers]. It's going to be hard on those industries that have preyed upon the "get it now" mentality -- that time may not be over, but it's going to really slow down.

4. Within any chaotic situation, there is opportunity. Get debt free -- start to use cash for yourself, not someone else. There is nothing more liberating than knowing what money you make is yours, not someone else's and you're just acting as a passthrough. Look for the next big idea, the next big "boom". With every down cycle, there is an up cycle -- it's natural and it's good for everybody and everything.

And finally ...

5. The sun will come up tomorrow. The people that truly loved you today, will truly love you tomorrow. That your dog and cat really don't care how much you make, what kind of car you drive, or any other "material" thing. In the end, all we really have is ourselves and those people we really care about - so take care of yourself, and your loved ones. It's time to believe in something other than things - and get to the stuff that's really important.


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