Below are some excepts from Financial News Hour that I felt worth mentioning. While I don’t always agree with their opinioins and when they are right they’re normally very early, I always listen to their show because I like to hear what contrarians are thinking.
– believes we are in a “grand super-cycle bear market” that is “correcting a long term bull market from before the United States existed from back in 1718 which is the reason for this volatility.” He also thinks we’re in the calm before the storm that will take us to Depression type levels lasting to 2010-2012. He’s advising his clients to raise cash during the current rally that could last 2-3 months.
While I don’t disagree with his final analysis, I’m not going to remain so firm in my bearish views to assume the markets are just going to fall everyday and doomsday has begun. To be honest I’m kind of tired of the “world is coming to an end scenario” and I really want to believe that we’re going to come out of this O.K. I’m sure there’s more downside to go, but when the markets decline it doesn’t have to be viewed as a bad thing as there are just as many opportunities to make money shorting as there is going long.
2nd Hour guest was Terry Burnham, author of “Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality“This interview focuses on how brain structures/conscious behavior actually work against our financial decision-making process. This is due to the fact that nearly everybody is irrational which in turn causes the financial markets to behave just as irrational. This is so prevalent in today’s wicked crazy markets that leaves most investors frozen with indecision about what to do next.
Lizard brain – “describe the entire human brain other than the small part above your eyes known as the prefrontal cortex’, that causes you to make decisions that isn’t necessarily in your best interest. It does have a major purpose in many settings of life including the following:
- Emotional structure – “Pride goeth before irrational fall. Our brain is built to make it difficult for use to recognize losses which causes us to get very stubborn.” This brain structure can work against us and causes us to lose systematically with your instincts being a major reason why.
- Iambic system
- Ancestral fight/flight system
Another part of this book delves into 2 main questions.
1. Do investors make good decisions? This has been proven that most people make poor investment decisions.
2. Are asset market prices correct? It’s hard to believe that this is ever true given that we’ve seen so many 10% up/down moves that it really doesn’t make sense to think that equities can be worth 10% less on any one given day than the previous day. The author basically states that the market is run by fear and greed of “completely irrational maniacs.”
Mr. Burnham made 5 predictions in 2005.
- Dollar will fall
- The end of price stability
- Bonds would wallow
- Stocks would disappoint
- Houses were bad investments
Now that investors are informed of this “lizard brain”, what can we take from this? It’s usually the uncomfortable investment decisions that wind up being the profitable ones. “Stocks for the Long Run” originally came out in 1994 and is one of the best selling books in the history of the world and we’re not to far from where the Stock Market was then now. Pretty ironic that everybody who took Jeremy Siegal’s advice to buy stocks long term will almost certainly have lost money.
Mr. Burnhams advice it to figure out what you want to do, and do the opposite. He also goes on to say that there hasn’t been a mass exodus out of stocks from common investors which is what you want to look for to give a buy signal on the markets.
All in all a very excellent interview and only about 26 minutes in length. I highly recommend listening to it to learn more about the psychology of investing and the role it has on your trading. 3rd hour didn’t present anything I felt needed to be reproduced for your reading pleasure.