Magical Thinking - phase 2

I have spent many thousands of dollars and many hundreds of hours learning to invest wisely.  In spite of that, I lose money as well as make money.  The amounts come close to balancing, but I must confess, in the past year or so they tipped towards the losing side.  I’m not alone.

The problem is partly “magical thinking”.  A byword in the training I experienced is that the market is mostly based on emotion.  In the fat years, even when the market moved down, or when a company’s fundamentals were poor, people (including those folks responsible for billions of dollars of investments) would say, “Oh, I’m bullish on the market.”  And often the market would go up again.  

But what was the data?  The data was that most stocks were oversold, and most stocks were overvalued.  So, when the market began to adjust (as it does) and then to crash (read nasty gambles by mortgage companies and big financial institutions), many of the magical thinkers kept saying, “But we are bullish here in the office,” or words to that extent.  I quizzed one such financial advisor and come to find out, he did not know how to gather the data for himself.  He relied soley on magical thinking.

Now the market has risen a slight bit in the past year.  The data says we should rise a bit more.  Insurance companies, among others, have more cash reserves than ever.  But every time there is a slight downtic in the market the fearful, the folks who got burned, are saying (ro thinking) “But it’s a bear market.”  Again, they are not checking the data.  

Note:  it is probably a neutral, or stagnating, market right now with the potential to go either way based on emotion and magical thinking.

Learning to think critically by being detached, basing thoughts on data, reading all the signals is essential to clarity and even to doing reasonably well in the financial market.  More importantly, in the market place of life critical thinking is required (unless you get very, very lucky all the time).