Grateful or scared? Your attitude affects how you view the market

As of the writing of these words, the markets have been more up than down during the past 3 weeks, but certainly still very choppy.

While talking to people, I continue to discover that there are two general schools of thought when discussing the markets.

One comes from a sense of abundance and the other from scarcity. What is really amazing is that often this is not about how much money one has, but rather how much one is grateful for what they have.

We have all met someone with limited funds who feels the abundance, while also seeing someone that seems to have everything feel it isn’t enough. If we are honest with ourselves, I bet we have all been in both camps at various times.

The camp that comes from scarcity will have you believe that the sky is falling, markets never go up, it is different this time and no risk is worth taking. This is routinely reinforced by those around us.

The news will report how the price of gas has set a new record high, but when the prices fall that is no longer newsworthy. Often they think there is security in CD’s and they fail to remember that a CD generally does not do a great job growing in real terms after taking into account the effects of taxes and inflation over time.

No one will argue that there is a place for a CD in a portfolio and that in the short term they will sometimes outperform the stock market; just look at the last 12 months.

However, in the long term they rarely allow one to achieve their goals, unless there is tremendous excess capital in the beginning.

The abundance camp has a longer outlook. While they are aware of the banking challenges right now, they compare it to the S&L Crisis of the 1980’s and realize we made it through then and will again.

They are not always comparing account values to whatever day was the absolute high last year. They realize that they need to smell the roses and that often our worry about the future is much worse than the realization of future as it unfolds.

It’s Different This Time? Remember the “New Economy”?

Wasn’t the bookstore Barnes and Noble going out of business due to Amazon and the Internet?

Didn’t we hear about how the “brick and mortar” stores days were numbered?

How many bought into this thinking in the late 1990’s?

Weren’t we all going to back in the stone ages due to the Y2K problems?

If you heard a report that we just shelled an Iranian oil platform in the Persian Gulf and program trading was running rampant, would you have confidence in the markets?

I think not, and yet if you put your money in a globally diversified portfolio on January 1, 1987 and looked again at it again on December 31, 1987, you would have likely come close to double digit returns that year, despite Black Monday where the DJIA fell 22.6 percent (508 points) according to Wikipedia.

I have been offering my insights for better than two years in this column and I hope you have found the topics presented helpful and timely.

This is my farewell column in this paper. The guest column usually rotates and it is simply my time to pursue other projects.

— Dale Terwedo

Based on our calculations, with the current price of the DJIA of 11,744 according to Yahoo Finance, an equivalent 22.6 percent drop would be equal to a 2,654 point decline today. All these things happened in 1987 and considerable worry could have been saved with some perspective.

I encourage you to move forward with your plans in a cautiously optimistic manner. Take what you hear with a grain of salt and perspective. Realize we have seen worrisome news every year and much more often than not, you were OK. Plan for some setbacks but don’t let the worry of them paralyze you in your planning.

I have been offering my insights for better than two years in this column and I hope you have found the topics presented helpful and timely.

This is my farewell column in this paper. The guest columnist position usually rotates and it is simply my time to pursue other projects.

I have found this project to be challenging and rewarding and I wish to thank the SCBJ and specifically my editor, John Wolcott, for his input and insight.

Remember, there is no reward without taking a risk of some kind. Think of the best things in your life; what risk was required?

The financial markets are no different; without risk there is no “risk premium” expected. It is just smart to manage the level and types of risks taken. I wish you health, wealth and happiness.