How many times in our lives have we heard the saying, Save it for a rainy day? For some, over and over again. With the financial crisis now circling the world, Save it for a rainy day, means more now than ever.
During the summer we always know when a heat wave hits, eventually storm clouds form to bring it to an end. On the other hand, when a storm is howling, after a period of time has passed the clouds break and the sun shines. Why then financially do we think the rules of nature do not apply? The stock market is quite cyclical…so too is the housing market. I know, this time the buffoons did quite a bit of damage…but the rules of nature still do apply. Still, humanity has a hard time believing that sun and rain are two sides of the same coin.
Many are asking themselves out there, how worse can things get? Well, short of the world coming to an end, we should be close to the bottom of this madness. Why do I call it madness? Because of a strange dilemma of human emotions. When the market is sky-rocketing, a fever grips the community where people can’t buy enough stocks fast enough….hey folks, this is what’s called, Buying at the top, and it can be a long way down. On the opposite end of the spectrum, when people are dumping their stocks at a feverish pace, where they can’t get out of their positions fast enough, this is called, Selling at the bottom. Our emotions tell us to buy when things are wonderful, and sell when things are horrible! It’s crazy….but the opposite, I believe, is true.
As we speak, there are trillions of dollars waiting on the sidelines for all the sellers to exhaust themselves. At that moment, it will look like a cattle stampede to get back into the market. Sadly, it is many of those who need the money, who sold their shares last. Is it truly the rich get richer? Or do cool heads prevail…..
So what do I mean by Save it for a rainy day? When things look like they can’t get any better, take a little off the table, and put it in an emergency fund, for when the rain comes….it always comes.
I remember during the dot.com madness in year 2000, many companies that made no earnings were bid up to astronomical levels. A floor manager on Wall Street remarked, I’ve been here 40 years and I’ve never seen anything new…the same things keep happening over and over again. This was before the housing bubble…well friends, it just happened again! And like the housing mess we are in now, it too will pass, with something else or a new fad waiting to take its place.
The sun shines….the rains come….and the sun shines again. Until the world ends, always keep an umbrella handy, just in case.
© 2008 Jennifer Avalon