Past performance is no guarantee of future performance. This disclosure has to be packaged on every investment vehicle. Even still, most investors have short term memory loss. Many base their investment choices on what has been and not on current events. They forget about rising problems that have been over shadowed or down played. Statistics show the investors become bullish after the market has risen and bearish only after the market has fallen. This is a primary reason of why the average investor cannot beat the market's returns by himself. Emotions get thrown on the table and all the fundamentals are tossed aside.
This is the classic case of behavioral finance. Investors get too tied up in how they feel about a certain investment and lose the buy/sell discipline. Statistics show that investors are prone to sell a winner too quickly and hang on to losers. We feel that if we sell a winner then we can show we accomplished something. As a result, many of us sell too soon in a bull market. We then get back in at the top. From there we buy and watch our picks fall. However, we refuse to sell based on the perception that our investments were good picks and will rebound soon. We hang on to these picks too long and lose more and more money. We then sell at the bottom and sit on the sidelines bandaging our wounds. The market rebounds and we get in too late, thus starting the cycle over again.
Discipline is needed to buy and sell at specific points. We buy based on fundamentals. Once those fundamentals change, we need to sell and move on. We all have our favorite picks. The great investor distinguishes himself by selling those picks and moving on without ever looking back. He takes the emotion out of the game. As a result, he can buy and sell according to his game plan without ever hanging on too long. Many people can pick great investments. Only a few can actually manage those investments effectively.
Sunday, February 26, 2012
Cash Money is Irrelevant
Today's world is moving closer toward a cash-less society. The amount of debit cards and credit cards being used is increasing every year. Banks are pushing customers to direct deposit and online bill pay systems. Many are even penalizing those who come in to see tellers too often. Gift cards are even becoming the Christmas gift of choice for some. So, why do we even need cash money?
I have a single dollar bill in my wallet. I used to go to the ATM and get a few bucks out here and there. If I didn't have anything in my wallet then I would refuse to spend money. Every week I find myself using plastic for cheaper and cheaper purchases. I cannot even remember the last time I had more than twenty dollars in my wallet. Statistics are showing more and more people are doing the same thing I do.
Many are pushing for the Fed to cut out some types of currency. The Fed has been producing gold dollars for a decade now. It would be easier to spend these instead of keeping bills in our ever expanding plastic wallets. Too many people, including myself, have chosen to collect these coins instead of spending them. Even as a banker, I see no dollar coins coming in from the Fed. Pennies are more expensive to make than they are actually worth. It would make more sense to trade them. Still, the Fed keeps on producing them.
It doesn't take much to initiate a change, but it takes a lot more to implement and execute that change. I am not pushing to get rid of currency altogether. Currency should be made easier to keep and spend or plastic will be the currency of choice pretty soon. Many people still like the feel of paper money and the sense that if they see it then they really have it. The only people who really seem to carry money are the elderly, corrupt government officials, and rich college kids looking to buy little bags of marijuana.
Currency still plays a critical part of our everyday lives. Whether it is to buy bread, gas up the car, or stuff under the mattress, currency will remain the money of choice for some. Sure, it might make sense to clean up our currency to make it fiscally responsible. Still, currency will never go away even in today's plastic world. Is cash money irrelevant? The choice differs according to who is asked; however, even after typing all this up, I am not convinced either way.
I have a single dollar bill in my wallet. I used to go to the ATM and get a few bucks out here and there. If I didn't have anything in my wallet then I would refuse to spend money. Every week I find myself using plastic for cheaper and cheaper purchases. I cannot even remember the last time I had more than twenty dollars in my wallet. Statistics are showing more and more people are doing the same thing I do.
Many are pushing for the Fed to cut out some types of currency. The Fed has been producing gold dollars for a decade now. It would be easier to spend these instead of keeping bills in our ever expanding plastic wallets. Too many people, including myself, have chosen to collect these coins instead of spending them. Even as a banker, I see no dollar coins coming in from the Fed. Pennies are more expensive to make than they are actually worth. It would make more sense to trade them. Still, the Fed keeps on producing them.
It doesn't take much to initiate a change, but it takes a lot more to implement and execute that change. I am not pushing to get rid of currency altogether. Currency should be made easier to keep and spend or plastic will be the currency of choice pretty soon. Many people still like the feel of paper money and the sense that if they see it then they really have it. The only people who really seem to carry money are the elderly, corrupt government officials, and rich college kids looking to buy little bags of marijuana.
Currency still plays a critical part of our everyday lives. Whether it is to buy bread, gas up the car, or stuff under the mattress, currency will remain the money of choice for some. Sure, it might make sense to clean up our currency to make it fiscally responsible. Still, currency will never go away even in today's plastic world. Is cash money irrelevant? The choice differs according to who is asked; however, even after typing all this up, I am not convinced either way.
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