Have you noticed that when people believe they’re going to lose something they often hold on to it even more strongly? When people get worried, they freeze up. When they get worried about the economy, they freeze their buying and spending, and many of them literally try to hide away – they hide themselves and they hide their money.
What we often forget is that money, itself, is an illusion – a convenient illusion, but an illusion none the less. It only has value because we as a society agree that it has value as a means of exchange. I exchange my time and efforts for this value (money), and you in turn accept that value (money) in exchange for the goods I wish to purchase from you. It’s sure a lot easier than me trying to find someone who is willing to take the basket of tomatoes I have grown in exchange for a cell phone! So it’s a convenient agreement.
When people get scared they try to hoard their money in an attempt to ensure it keeps its value. Unfortunately, money only maintains its value when it’s being circulated. When people hoard anything, it shrinks, closes down, and ultimately becomes obsolete. Remember those tomatoes, if I tried to hoard them they would eventually rot and become useless to me.
On the other hand, when people invest, then things begin to expand. When they expand their thinking or their efforts, things grow. When things grow, they become healthy.
Which is not to say that I think we should all go out and spend. Even though spending does put money into the economy temporarily, spending is different from investing. Investing involves looking at fundamentals – looking for value and supplying the life blood of time, money or energy that allows an idea or a well-run company to survive, grow and ultimately thrive.
The stock market is simply an extension of our agreement of value. And, unfortunately, the stock market is all too often swayed by the perception of the investors. Take a look at how the market swings during times of turmoil. The fundamentals of the companies whose stock is publicly traded do not change on a daily basis, yet the stock market can jump dramatically one way or the other, depending on the confidence or sentiment of the people who are trading the stock of those companies. That’s why the smart investment brokers recommend long term investing over day trading. Because over time, the market always comes back.
People have gotten wealthy at all times and in all economies. There have been people at all times and in all economies who have gotten poor. And there have always been people who have promoted doom and gloom.
The news media is having a field day with the recent economic shifts. They are notoriously consistent when it comes to bad news – I often think of them in the same way as I do the office gossip – they can’t wait to talk about the awfuls (and, it sells a LOT of newspapers!). Unfortunately, in times like this it simply feeds the fear.
I was talking to the husband last night about how this reminds me of the dotcom bubble – this is the financial/housing bubble – people thinking that bad investments would never catch up with them. Markets have been cyclical forever, what kind of New Age illogical thinking would make anyone believe that unsupported financial risk doesn’t have a downside?
As painful as this may seem, this kind of event actually has a beneficial side – it’s like cleaning out a festering wound. The economy couldn’t get healthy again until this was cleaned up. And just like the dotcom fiasco some years ago, everything will come back again – and in many ways, in much better shape. We recovered from the dotbomb crisis and we will recover from this mortgage lending crisis.
Which is not to say that I think we should ignore what is happening around us. That would be New Age unsupported thinking. What I am suggesting, however, is that we take a larger view and realize this, too, shall pass. That we look for ways to help expand the economy and our own wealth through investment in what is positive and provides legitimate growth. That we take a look at what we are doing now that is unintentional, frivolous or just plain stupid, and make appropriate adjustments.
I suggest we look for the positive opportunities that will come out of this. We can all end up stronger, smarter and in the long run better off, if we remember to keep breathing and to keep moving instead of trying to simply hide away. This could be a time of unprecedented opportunities if we’re smart and keep our wits.
Thanks to my friend Ed Dale, for providing me a link to this fascinating video with Warren Buffet. Take the time to listen to what this financial genius has to say. The video is an hour long, but it is definitely worthwhile! And hopefully you’ll feel just a little bit better.
Looking forward to hearing from you,
Warmly,
Katie