Tuesday, July 20, 2010

This time it's different

I started reading a book called When Pigs Go To Market, about the virtues of long term investing in the stock market as told through characters in a story.

It was written in 1999, presumably right before the dot com bust brought down the market.

I found it pretty interesting when the main characters have a conversation, with the expert explaining how this time, the market is different. That is, while there will still be ups and downs, it will not be like before but rather, the downs will not be so bad and the market will keep going up and up.

Another character plays devils advocate and reminds the expert how history repeats itself and each time the market has hit new highs, including back before the great depression, people were saying "this time it is different," i.e., the market is going to keep going higher and higher. She reminds him of the verse from the Book of Ecclesiastes that says whatever is has come before, and there is nothing new under the sun.

The expert acknowledges this, but then goes on to list a bunch of factors as to why this time it will indeed be different.

Of course, reading this in hindsight, we all know that it was NOT different, and history DID repeat itself.

Now, I am not saying the market will not eventually hit new highs. In fact, I believe it will, and sooner, rather than later (that is, within 3-10 years, not 20-30 or never, as some feel). If you look at a long-term graph, it will continue to trend upwards. But it is still going to look like a roller coaster, because history repeats itself.

People felt that real estate was going to keep going up and up in value. For a while it seemed like they were right, but.. it ran out of gas and so that time was no different before. History again repeated itself.

The way I look at it, this is good and bad. Good, because the market is going to hit new highs, just like it has done in the past. Bad, because there are also going to be bad times when it swings downward. You just have to immunize yourself from thinking that when the market hits the new high, that this time it is different and it is going to keep going up and up. And, when it bottoms out you have to remember that history repeats itself and it's going to swing back up. It will be no different than before.

That's all.. just felt I had to put in my two cents after reading that part of the book today.

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