Thursday, October 09, 2008

The Stock Market is Bullshit

I had this realization more than a year ago and regret I didn't do anything about it. Like many Americans, most of my retirement fund is in stocks. I bought into the myth that the market always goes up over time and it's the only way to build your nest egg.

I understand business, but I don't really understand stocks, because I am not a good gambler. Buying stocks is gambling, simple and pure. So, I depended on a broker and most of my money is in mutual funds.

But while stocks represent ownership in companies and to some degree do better or worse based on the performance of the company, they are also subject to emotional trading, and they are in themselves a commodity.

As America transitioned from company pensions to 401ks, a lot of new money entered the market. Thus there was greater demand for the available stock, and that makes prices go up.  So the 401k effect in itself was a bubble. Add that to the realities of today's economy and you have a crash.

While the market may continue to drop, at this point I don't feel like I have any real choice but to leave my accounts alone and hope they rebound before retirement. But when the S&P returns to about 1,500 (probably 5-7 years), I'm out. I doubt I'll actually be retired then, but if I do invest, it will be in something I understand, and something not likely to rise or fall on emotion.

No more gambling for me.

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1 comment:

Josh said...

Good observation. I was thinking this. Let's travel to some third world countries and get rich off of trading for REAL.

You down>?