Those who study behavioral finance sometimes refer to this as extrapolation bias. It's damn hard to see a 6,000-point rally coming when you have just witnessed (suffered) a 7,000-point blood letting. The paradox is that, the closer you are to action, the more difficult it is to see around the bend. Speaking of seeing around the bend, I had the good fortune of meeting and interviewing a man by the name of Verne Wheelwright several years ago. Verne wrote a terrific book called, It's Your Future: Make It A Good One. According to the World Future Society, an organization to which Verne and I both belong, FORESIGHT, is the most important skill one can develop for the 21st Century. I could not agree more, which is why I included this as a category in my new Wealth Management Bookstore. In any event, the purpose of this slog post (as always) is to get you thinking. Hope you find this helpful. Click on images to enlarge... Looking back from the far side of the chasm... It's twue, it's twue, hindsight IS 20/20 View from the top... I feel good! Think I'll go to a seminar and learn how to flip real estate... Click on images to enlarge... View from the bottom... Damn, that hurt. I think the world is coming to end... Déjà vu all over again... The World Future Society says that the most important skill one can in the 21st Century is "foresight." Maybe I should look into this... Explore Some More
8 Comments
Amen, brother! Foresight is the most important thing that our clients hire us for. That, and our knowledge of current tax, estate and liability issues. No one can predit the future, but in this profession one has to try. The key is adjusting to what is really happening as we go forward. There will be drawdowns, they are inevitable. The key is to win by not losing, so it takes less to get back to even and to making the client's money again. Thank you for this! 1/4/2013 07:49:08 am
Great points, Steve! And market graphs tell only one story, when in our lives we have dozens of other factors that affect the financial bottom line and peace of mind-- job income, job status, company state, budgeting and spending, mortgage and loan rates, real estate, health care, education costs, etc. Overwhelming.
Steve Saenz
1/5/2013 02:17:37 am
Thank you Edwards, in addition to foresight, one of the most valuable skills a consultant / coach / financial advisor (anyone really) can have today is the ability to help other people make sense of things. You do that by helping then cut through the complexities of life and by helping them stay focused on the things that matter. Another crucial skill is the ability to help others (and yourself) discern the difference between relevant and irrelevant information. That last one may be the most valuable of all. 1/5/2013 02:12:38 am
Todd, foresight is a skill that can be developed. Please listen to my interview with Verne Wheelwright at http://www.stevesaenz.com/verne-wheelwright.html
Bob Cohn
3/6/2013 04:11:49 am
Great post. Stimulated a couple of thoughts:
Michelle
5/3/2013 11:14:04 pm
Very interesting. I am not sure whether out of optimism, unshakable belief in the future, or foresight, but I started buying stocks in 2009, during the worst of the slump. My little portfolio has done nicely since then. 5/4/2013 12:04:25 am
Hi Michelle, thank you for your comments. After 30+ years of working in the industry and 5 of trading stocks before that, I would say that "foresight" (as it relates to the stock market) is a function of four things -- 1) past experience and observations about the market; 2) understanding of human behavior (now called "behavioral finance" but it basically boils down to fear, greed and "herd mentality'); 3) understanding of the "mechanics" of the markets (which breaks down into fundamental and technical analysis) and 4) a "gut feeling" that comes with #1. 5/4/2013 02:14:00 am
I love charts and graphs. They stimulate me to think about causality ... not correlation ... and what it is that is really going on in the economy and society that is NOT captured in the charts and graphs I am looking at. For example: the DJIA is about price, but what about volume. The loss in value of the market is not really price times number of shares issued, but something else. For example: the chart presented is from a perspective, but what about looking at the issue from another perspective ... organizations may be making profit, but communities where organizations are located are doing badly. Where are the charts for the performance of communities? Your comment will be posted after it is approved.
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RAMBLE ON, the name of my SLOG was inspired by the Led Zeppelin song with the same name. It also describes the content, which reflects my very random observations about life, work and my endless pursuit of the sublime. See tag list below...
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