Out of Sight, Out of Mind?

With the enormous amount of cheap money being pumped into the system by the Federal Government in various forms, is seems many are economically 'sedated". It is a bit alarming that despite most of the economic gurus believing inflation will be a problem in the future, they refuse to take precautions to preserve recent gains. We are struck by the number of investors who are confident they can wait until the last minute to “move to higher ground”. The lure of more upside is masking the lack of stewardship with the gift of a 50% return in the market over the last year or so. Here is a great excerpt from one of Warren Buffett’s annual reports:

“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities – that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future –will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is on great party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem though: they are dancing in a room in which the clocks have no hands.”

When managing investments with a “don’t lose” mentality, we force ourselves to prepare for the future sooner than most.

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