Their headlines read like something right out of the Hollywood tabloid magazines found in the junk food section of the supermarket:
Will you survive the coming global financial crises?
Millionaires are reported to be stockpiling cash and gold at an alarming rate!
Shocking facts about the dollar’s demise. Four signs the dollar will collapse soon!
This 3,000-year old financial indicator says that a major crisis is looming!
Sell everything and buy gold!
Sell everything and buy silver!
Sell everything (including your gold and silver) and put your money under the mattress!
It seems as if the end is always near for the financial doomsday prognosticators. They remind me of this guy and the never-ending “going out of business” sale:
These masters of disaster have become a bigger part of pop culture lately and the frequency of their dire warnings seem to always increase during election periods. What is so ironic to me, is that there’s an endless parade of these financial “helpers” who are all too happy to take your U.S. dollars, only to tell you why those same dollars will soon be worthless! I guess the irony is lost on them.
These merchants of gloom and doom appear to have one goal in common: To so paralyze you with fear that you let them do your thinking for you as you rush to take their advice and give them your hard-earned money.
And it’s not just backroom hucksters trying to make a buck from selling fear, even former presidential candidates have gotten into the game. Last summer, Ron Paul started appearing in radio spots, web videos and television ads for Stansberry & Associates Investment Research, a Baltimore firm whose founder, Porter Stansberry, was once sued by the Securities and Exchange Commission for fraud arising from stock tips sold through his newsletter.
The ads urge viewers to buy a book by Mr. Stansberry, “America 2020: The Survival Blueprint,” to safeguard their savings and wealth against the crisis it says will arise from a devaluation of the dollar driven by the Federal Reserve’s loose-money policies and the federal debt.
“Stocks and bonds will crash,” the former Texas congressman says in an ad broadcast on CNN. “The savings of millions could be wiped out. You can’t rely on Washington to help you.”
Fear mongering has always been a growth business and always will be. There is no law against it unless fraud can be proven and fraud only occurs when the fear monger’s greed outpaces their desired income. Most of the doomsayers don’t cross that line, but they do like making bold predictions.
And bold predictions are great for marketing purposes and often lead to increased sales (in the short term) of whatever product the “expert” is selling. What is incredible though, is how often many of these “experts” are wrong. Dead wrong.
Ever heard of Joseph Granville?
In early 1981, Mr. Granville sent word to “sell everything” to subscribers of his weekly letter (which cost $250 a year). The result was a one-day 2.4% decline in the Dow Jones Industrial Average on record volume at that time. The order came just days after he had predicted the market was headed “straight up.” He drummed-up subscribers at seminars he gave featuring props such as lasers, chimps and bikini-clad assistants. He punctuated his insights by shouting, “Boom!”. According to the Hulbert Financial Digest, a Dow Jones publication, Mr. Granville’s recommendations on average lost more than 20% annually over a 25-year period ended in 2005. Boom!
What about that prolific predictor Harry Dent?
In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DJIA would reach 10,000. Both of these predictions were met with much skepticism, and yet both eventually came to pass. In 2012 he began writing weekly articles for the investment newsletter Survive & Prosper, now known as Economy & Markets, which offers investment advice guided by his belief that a major economic crash is inevitable and that it will drop the DOW all the way to 3,300. As of early 2013, he had amended his predictions slightly to an expectation that the financial crash would begin between the end of 2013 and the first half of 2014. Neither occurred. Ooops.
Remember Meredith Whitney?
She shot to fame after correctly forecasting the issues among some of the large financial institutions during the 2007–2008 crisis. Since then, she boldly (and incorrectly) predicted hundreds of billions of dollars in municipal bond defaults would occur. On the back of that lofty prediction, she started her own hedge fund only to shut it down two years later due to lack of clients. She would later describe her predictions of enormous municipal bond defaults as a “guesstimate” involving “fifth-derivative dimensions”. For all her predictive abilities, I guess she couldn’t predict the failure of her own hedge fund.
Do you see a pattern in the profiles above?
Typically, the predictor will make a bold prediction that just so happens to come true (even a broken clock is right twice a day). The “sheeple” will then flock to them, rationalizing that the predictor is “the one” – the very person anointed from above to predict what will happen in the stock market and general economy in the future. Then, the inevitable happens. They make another prediction that turns about to be wrong. Dead wrong. So much for their predictive abilities.
Now, all this would be hilarious, if it weren’t so sad. Thousands of people seek-out this type of information and give-up a portion of their income in the hopes of seeing into the future via someone else’s eyes. So, what is an average wealth-builder to do in the face of all these breathless prophesies of impending doom? Here’s some advice:
- Don’t look for patterns where patterns don’t exists. The greatest investor in the world, Warren Buffett, has said on dozens of occasions that he cannot predict what the market will do today, tomorrow, or 10 years from now. Doesn’t it stand to reason that if the world’s most successful investor can’t foretell the future, no one can predict the stock market? And there’s a very simple reason why the market cannot be predicted – each day there are tens of thousands of participants buying and selling stocks based in large part on their emotions (fear and greed). How in the world could someone coalesce all those future decisions, by all those people, into a single prediction? The answer: It can’t be done. Look, it’s a proven fact that our brains seek order and patterns for things that we cannot fully understand. This causes many to desperately seek-out people who they believe can make sense of random events. I have news for you – If you can’t handle the randomness of the stock market, my best advice is for you to give up on the idea of being a successful investor. The market is random. Always has been. Always will be. Don’t try to make a “pattern” out of randomness. Accept that the market behaves randomly or find another way to build wealth.
- Don’t let your lizard brain betray you. Psychologists have labeled the “lizard brain” as the part of our brains that handle basic body functions like breathing, balance, coordination and simple survival urges like feeding, mating, and defense. This terms comes from the instinctual survival flight response for lizards to avoid hungry hawks and humans to flee ferocious lions. Over time, the threat of lions eating people in modern lives has dramatically declined, but the human’s “lizard brain” is still running in full gear, worrying about other fear-inducing warnings like China’s economy slowing down or the price fluctuations of gold. The best investors have developed the ability of separating emotions from rational decision making, by keeping their lizard brain in check. As Martin Luther King said, “Normal fear protects us; abnormal fear paralyses us.”
- Don’t let “them” do your thinking for you. If fortune tellers could accurately predict the future, why wouldn’t they live in the nicest houses in upscale neighborhoods instead of in the back room of a down-trodden house with a blinking neon sign out front? Why are economists never listed in the Fortune 100? And if fifth-derivative dimensions (whatever the hell that is) can’t accurately predict the future, what can? William O’Neil said it best “Since the market tends to go in the opposite direction of what the majority of people think, I would say 95% of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable.” Here’s a fact: CXO Advisory Group measures the so-called gurus – folks who make public market forecasts in public forms. And what is the average accuracy of this group, as measured by CXO? Wait for it….It’s 47%! How would you like for a heart surgeon to operate on you that has a less than 50% success rate? Exactly.
- Stop relying on others to provide your financial security. The signs are all around us that in the future, we will be able to rely less and less on the government, social programs and employers for financial security. The sooner you prepare for this likelihood, the more control you will have over your life and the greater your peace of mind will be. The average American is saving only 5% of their income today. Start bumping that up until you get to at least 15% – and preferably to 30-40%. Avoid the trap that many Americans have already fallen back into of spending more, saving less and carrying credit card debt. In short, make your own plan for financial security because guess what others have planned for you? Not much.
- Stop saying “this time is different!”. It seems that not one market down cycle goes by nowadays without someone proclaiming that this downturn is different from the rest. They get themselves so worked-up that the “big one” is right around the corner that they forget about what just happened in the near past. And if they had just remembered, they might make fewer costly errors – like sitting on the market’s sidelines during the last downturn when they should have been buying stocks at bargain prices. For some reason, people cannot get it into their heads that yes, bear markets do happen, but bull markets happen too! If you go thru life cowering in fear during the infrequent bad times, you’ll most likely miss out on the more frequent, and inevitable, times that the market bounces back and performs very well. It always surprises me how fast people forget this fact – stocks are positive much more than negative – on the order of 2.5 times to 1. No, this time is not different.
- Stop listening to the “end of America” bull crap and why our economy is on an unavoidable collision course with destruction. I tell people that we have the best economic system in the world, but that doesn’t mean that it’s perfect. It will gyrate. And swing. And there will be imbalances. But this economy is the very best at unleashing human potential. The types of human potential that have created the automobile, put men on the moon, built electric cars, and allowed two guys to start a multi-billion dollar global corporation from their garage, all during unstable times. As Buffett has said “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. American GDP per capita is now about $56,000,” he said. “As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries.” American efficiency and productivity drove — and will continue to drive — that growth, he argued. I know that Buffett gets dinged for this rosy outlook as being too “polyanna”. But know this – he’s not optimistic because our problems are small, he’s optimistic because our capacity to deal with problems is so great. If you’re really worried about the economy, my advice is to go out and make your own economy. Our system provides you the best opportunity to do just that. I should know, it allowed a country boy from a poor family in Louisiana to defy the odds, build incredible wealth and to become financially free!
If you go back and listen to speeches from forty-to-fifty years ago they sound remarkably similar to speeches of today. They all include statements such as: “During these uncertain times…” At the same time, we live in the safest world that mankind has ever experienced. Fewer deaths per capita from all the things that we worry about. We are also living in the most prosperous time that mankind has ever experienced. John D. Rockefeller couldn’t dream of having the modern conveniences that the average household enjoys today.
Is there risk?
Are there economic challenges?
Sure there are.
But guess what?
Every moment for the last million years has had risk.
But what has been proven time and time again, is that fretting and worrying about the issues of the day hasn’t done one thing to actually make it go away. All that anxiousness does is to amplify and spread fear.
A better philosophy is to attack fear. To forge ahead and to conquer new frontiers. For the real risk is not “out there” my friends. No, the real risk is inside. The true risk is of not being all that you are capable of being.
Be free. Nothing else is worth it.
Latest tweets from Monty!
“How to stop comparing yourself to others? Work so hard on your goals that you don’t have the time. Then, YOU’LL be the one THEY compare to!”
“Still just want to be comfortable financially? The people who fell into poverty today, just wanted to be financially comfortable yesterday.”
“Are you a self improvement “tourist”? Merely looking at something never causes change. Change comes from new habits and action.”
Ready for more tips on how to achieve the free life? Check-out these articles from the blog archives: