Chris I agree… I think the parallel is in the housing market. Greed and complacency created the housing market. And I don’t mean greed in the more negative sense, but most money is invested without being actively managed. And everyone wants the extra buck around the corner. People are afraid to buck a trend which still shows positive because they are worried about the extra margin they might lose at the top by getting out.
The complacent investor becomes the frightened one bolting for the door when we have the next major correction. Too many people lost big in the tech bust to have forgotten the lesson of how fast it can get bad. Instead of riding the wave down (like so many of us did in tech, people will take 20% losses in their portfolio to not get wiped out again. (Which seems contrary to logic as the tech stocks were really based on ridicules fundamentals, not just bad ones like our current P/E’s.
Personally – I don’t want a tragedy. Even though I am 90% in cash and bonds I don’t want the economy to do what I fear it is going to – that is implode. Anyway I am not worried about losing a huge upside – I would rather forgo the upside and protect the downside right now. That is why I sold my house and am renting. The housing market has already begun it’s descent and the stock market will go with it when housing becomes a superdrag on consumer spending.
