I had a lovely flight home from Southern California this week. Shortly after take-off I activated the autopilot, which, for the next 80 minutes, flew my assigned route back to St. George perfectly. I monitored the airplane’s systems throughout the flight, but also had plenty of time for enjoying the view. As I passed over Vegas, with the family quietly playing video games in the back, and the beautiful city sprawling out below, I could have been very tempted to think that this whole being a pilot thing was getting pretty easy, and on that particular day, it was.
The reality is that most flights in today’s modern airplanes are uneventful, thankfully. Herein lies one of the greatest risks to being a pilot. If years of safe flights lead one to think he has got it all figured out, that is when he becomes a danger to himself and others.
We are in the fifth month of a rising stock market and the longer it lasts, the more concerned I become, not for the markets, but for investors. Investors will remember that the last two major market disasters, 2000 and 2008, were preceded by a period of dramatic growth. The result of those good years was that many investors began to think they had it all figured out. As my dad used to say, “When markets are going up, everyone thinks he is an expert.”
The late 90’s saw the emergence of the day trader who, after seeing several years of strong portfolio gains, thought he had magically become an expert. Setting off on his own to conquer the markets, he began to take risks few true professionals would take and, in the end, most day traders lost money; some lost it all.
The booming real estate markets of the early 21st century gave rise to a phenomenon known as “house-flipping.” Suddenly it seemed everyone was a real estate investment expert. Initially it appeared to be a never ending party, but all parties come to an end and when this one did in 2007, families and fortunes were devastated. Once again, many blamed the markets. I blame the investors.
My business associations give me a sense of investor attitudes and I am starting to see a return to the dangerous ways of the past. Some investors, and even advisors, are beginning to feel like making big money in the markets is suddenly easy again. I am seeing an increasing desire to take risks even the true experts are not willing to take. As making money gets “easy” in investor’s minds, the danger gets greater. I am not worried about the markets. I am worried about the investors.
Whether piloting an airplane or a portfolio, if sunny days lead you to thinking you are suddenly the expert, you have become a danger to yourself and others. Before you rush out to re-open that old trading account, you should know what the real experts are doing in this rising market…(continued next week)
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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