by | Dec 23, 2003 | Archives

Stock market bubbles are no secret. Yet investors get caught up again and again. I am predicting this about to happen once more probably in the spring of 2004 and ask the question, why?

A professor at Princeton who won the Nobel prize in economics says this is partly due to investors' ''illusion of control”. They think they can get out of super heated markets in time. This ignores a reality of human nature. Most investors are not disciplined. Many are inexperienced. The theory is that human nature finds losses twice as painful as gains. So inexperienced investors who think they can jump ahead of the fall, get caught in the pain. This is something like a new driver on ice. The tendency is to slam on brakes when one should be giving it the gas, or vice versa. Since these big bubbles only come every decade or two, one has to learn fast to survive.

Stock markets are showing new life. As markets rise in the days, weeks and perhaps months ahead, beware, not of the market, but of yourself. We are human. Markets are not logical and often go against the grain. So do we. The traditional press may be tell you that things are getting better. Times can be good if we take care and invest iinteligently, but I am betting that millions of investors will get clobbered at least one more time.

We will look at this in messages through the rest of this year. It is likely that a sucker punch is coming rather than good times. Can you put your trust back in the U.S. stock market? Hardly. So be careful.

Until next message good investing.