To err is human, but to show human frailty is unforgivable

ASSUMPTIONS are the mother of all catastrophes, especially when it comes to the sharemarket. We did five last week, here are five more:
By · 1 Sep 2012
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By ·
1 Sep 2012
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ASSUMPTIONS are the mother of all catastrophes, especially when it comes to the sharemarket. We did five last week, here are five more:

Everyone else is making money. One of the most glorious financial marketing conveniences is that winners stay and crow and losers go. The sharemarket is fantastic at raising up its winners and forgetting its losers. That's why people write and buy books like How I made $2 million on the sharemarket not How I blew my kids' education trading CFDs.

You need to know, which you probably already do, that you are only going to hear one side of the success story in finance, which is a shame, because as any motorcyclist will tell you, you learn far more from other people's accidents than you will ever learn from their stories of glories.

It's not my fault. When I first joined the broking industry 30 years ago the senior partner took new dealers aside and told them the facts of life for brokers. They included the fact that one of the services we were to provide, implicit in a commission, was that we always took the blame: "The blame comes to us, the credit goes to the client. Don't fight it, just accept it. In the long run it will benefit your relationships, the wellbeing of your clients and the longevity of the firm."

I'm not sure that 30 years later in a more litigation abundant environment that brokers would still hand out the same advice today, but it is certainly a fact of life that everybody wants someone to blame. But it won't get you anywhere. Blaming someone else for your financial outcomes is simply a placation of your lack of responsibility, which is always after the fact and, therefore, too late.

On top of that, if you don't accept the blame it perpetuates the lack of responsibility and the lack of attention, with the end result that nobody learns anything or changes anything for the better. You don't progress.

You, as the person with the money at risk, have to decide what advice to take, what structure to enter and what responsibility to give to others or accept yourself. It is your choice and your responsibility, no one else's.

The sharemarket is about fear and greed. Emotion is a killer for investors. It perverts the investment process. Loving or hating stocks, being loyal, respectful, polite, proud, fearful or greedy, being envious of others, regretting not selling or buying, referencing (anchoring) your decisions to past prices ("if it gets back there I'll sell") and any other emotion that creeps into the investment process is not healthy unless you are the person on the other side taking advantage of it.

Yes, the market is fearful and greedy, but it is those emotions in other people you need to exploit. Selling a bubble at the top. Buying a depression at the bottom.

Anything that is not quantitative that is affecting a share price is to be exploited by you, by unemotional, cold, calculating people who deal objectively with the facts. If you "love" or "hate", are "fearful" or "greedy" you're on the wrong side of the equation.

The sharemarket always goes up.

The property market always goes up. Many retirees built great nest eggs on the property and sharemarket booms in the past 30 years, and the assumption is that you will too. But the sharemarket has gone down 9.6 per cent a year for the past five years and it'll take another five years going up at 12 per cent a year to get back to square one.

Dispelling the assumption that the market always goes up is perhaps the most constructive legacy of the GFC. Baby boomers rode a 30-year wave of asset price appreciation. That's how they built their nest eggs and their current job is to preserve them. Everyone else is going to have to build their nest eggs on their wits and with effort because mere participation doesn't cut it any more.

Far better we accept the reality that making money effortlessly was not "normal", it was great. Now maybe we'll appreciate, rejoice in and exploit a bull market when it returns, rather than think we're owed it.

For a free trial go to His views do not necessarily reflect the views of Patersons.

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