Fear of Business
I watch with fascination how people’s approach to varying types of wealth changes. Let’s look at the treatment of three different categories of investments over the past few months.
It is no secret that the value of residential real estate has declined substantially in the USA. A lot of the former hot spots have come down 15-20%, and since there is usually a lag time, Canada’s turn for this adjustment may be just around the corner. Now people may have left their homes or income properties for reasons of foreclosure or payment problems, but I’ve not heard or read of anyone bailing just because values were going down. They hang in and say they are in it for the long run.
Another example is gold, long considered a very stable and safe investment. However it recently declined by 10% in a one-week period and is down 20% from its high as I write. This was barely newsworthy and nobody seems concerned. Investors seem to be in it for the long run.
And then there’s the stock market which historically has outperformed both of the above investments. I can guarantee that when these types of declines occur in the stock market advice abounds on what you must do to protect your capital. People panic and sell out. Life as we have known it is coming to an end. To hell with the long run.
We tend to think of the market as some mysterious organization that can’t be trusted. Something separate from real life. But really it is just a collection of businesses run by people like you and I. They experience up-and-down cycles just like the company you own or the one you work for. Fluctuation in their prices is not only normal, but also very healthy. Don’t be afraid of being invested in a good collection of businesses – they’re in it for the long run too.
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