When Fear Takes Over

This blog entry is overdue, given the wild ride of the financial markets over the past few weeks, and the unbelievable amount of press associated with it. 

It is obvious that fear has been the predominant emotion driving the behaviours of millions of people around the world during this period.  And unfortunately, because of modern technology they are able to act on their fear very easily and very quickly by selling anything and everything as quickly as they can.  Or, in the case of most of the world's banks, by stopping lending to each other.

What is the effect of all of this?  Massive value destruction.

Furthermore, fear's actions create the context for more of the same, and we keep proving ourselves right as we produce exactly the results we fear most.  For example, when we cut our spending and investing, the economy slows down.  Hearing that news, we cut our spending further, and the economy slows down further. 

It isn't until we reach some arbitrary level that we determine as "low enough" or "bad enough" that some of us start opening up the flow of money again and taking more risks.  That is when things start to turn around, and then more and more people start doing the same, in reaction to the data they hear.  BUT SOMEBODY HAS TO BE FIRST. 

So, how do we break this cycle?

Surely we can't completely ignore what is happening around us? 

No, we should not completely ignore it.  But we should not let it be the ONLY thing we are responding to either. My recommendation is as follows:

KEEP THE LONG TERM IN MIND, AND BALANCE THE NEGATIVE WITH THE POSITIVE. 

• If you've lost money in your investment portfolio (like most of us), keep in mind that in most cases you won't be needing that money for a loooong time anyway, so it isn't a "real" loss in that sense. 
• If you were thinking about taking a trip, I suggest still taking the trip – just make it a bit more modest. 
• If you were thinking about making home improvements, make them, but similarly, maybe you just make them a bit more modest. 
• If you were going to invest in a new business venture, weigh out the pros and cons, and if it still adds up, proceed.  Perhaps it's just a more modest business venture.

Remember, the economy doesn't grow (nor do plants) unless there is and exchange and flow of funds (or in the case of plants – nutrients).  

I will end this entry with a quote from Thomas Jefferson that is listed on our website: "In matters of style, swim with the current.  In matters of principle, stand like a rock."

To balance.