The False Prophets of Stock Market

The False Prophets

One of the aspects of depressions, recessions, and bear markets that is most difficult to understand is the false leadership or false prophets that are prevalent during these times. In part, its intentionally false, as in the case of most political parties when in office. If they suspect the business future is grim, they will rarely reveal this if they can avoid it. And what must be revealed to the public is distorted or delayed or colored.

This is only human. Nobody wants to lose his or her job, and recessions and depressions usually cause politicians to lose the next election. The talking heads on television have a vested interest in talking markets up to maintain their stations advertising revenue, and their jobs. Vested interest is knee-deep in the TV and mass media worlds. False prophets often speak with great sincerity when they say they foresee great prosperity ahead.

Or if that statement seems less than realistic, then its a combination of wishful thinking and self-interest that cause them to announce we will have a soft landing, that we should be looking for new buying opportunities, that weve made a bottom. Most honestly cant see around the corner. This is no crime. But if one wants to preserve his capital (and perhaps even dare to dream of increasing it) during a sick economy or market period, one must try to see around the corner.

An important requirement for investment success is to think contra. If the Secretary of the Treasury in any nation says he looks for next year to be better than this year, one should form the habit of automatically being skeptical. It may be meant as a statement of fact, but the odds are that it isnt. And by doubting it, you prepare yourself for preserving your capital. As Diogenes advises: Be a cynic. Likewise, in bad times, the chairman of some board may forecast that software sales will be rather miserable again next year.

This should be greeted with the same reaction. Its probably a time to buy shares in software companies. They may be right, but get into the habit of thinking they are wrong, because they probably are. The majority usually are. Even the majority of board chairmen, or Treasury Secretaries and Exchequers.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com