Weekend Wisdom: Stocks Are Not Volatile. Emotions Are...

"When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion."  Dale Carnegie (1888 - 1955)

The volatility is certainly here.  But is it really surprising?  If you are a prudent investor, should it really matter? 

As is the custom with my "Weekend Wisdom" post, we'll ask some reflective questions regarding events during the week and offer sound wisdom for your peace of mind...

• A forecaster reduced the 2007 hurricane season outlook, but this week's comments by Countrywide suggest larger storms may be looming...
• Sales of new homes plunged by the largest amount in five months...
• According to the The Mortgage Lender "Implode-O-Meter," more than 100 major U.S. lenders have "imploded" since 2006...
• Could it be wise to rent vs. buy a home?  The average real return for houses over the long-term might surprise you...
• This week saw the second worst day for stocks in 2007...
• The worst sector is now financials.  Could the sector's unusually poor performance be telling us something?
• Is the market looking eerily like 1987 before the crash?
• What has changed in the markets this week to drive prices so much lower?
• Are there signals to look for indicating the bulls have "lost their mojo?"
• This week saw the highest outflows for mutual funds since February 27.  Is this a buying opportunity as that day arguably was?
• Why are private equity experts keeping an eye on the Chrysler deal?
• What can a seasoned investor learn from a sack of potatoes?

As TFP readers may attest, I will always say that the prudent investor's asset allocation will always allow him or her to reply to questions, such as those above, with the same two words no matter what the market is doing:  "Who cares?"

I will admit that my tongue is ever-so-slightly in my cheek as I say those two words.  After all, indifference is not a wise state of being, either.  The unusual volatility during this past week reminds me of why we seek timeless wisdom -- to keep proper perspective...  Stock prices are inanimate numbers on paper (or I should say, a computer screen).  They are not volatile.  People's emotions are volatile...

This is why the greatest investors are philosophers first -- and investors second...

TFPAuthor, Kent Thune, is the President and Owner of Atlantic Capital Investments, LLC (ACI), a 'fee-only' Registered Investment Adviser firm located in Mt. Pleasant, SC.

Comments

[Jeremy Welch]

I've read about 3 other blogs with a similar list of worrying stories. Those lists got my emotions going. Thanks for bringing me back down to earth with the reminder that this is precisely the situation where the disciplined investor does not let emotions take over.

The stock emotion game is much more exciting than steady analysis and patience. But, its the steady analysis and patience that ends with much higher returns.

[The Financial Philosopher]

Great point Jeremy. I've found that the prudent investor does not react to their own emotions but will react to the emotions of others. A selloff this steep and broad almost always generates some good buying opportunities...