Guest Author - Tony Daltorio
Being a trader requires a mindset where your attention span is fleeting as, like a buttefly, you flitter from trade to trade.
However, being an investor requires a totally different mindset. You have to actually think and try to figure out where things will be in the future.
The most difficult thing for an investor to learn is patience. Sometimes you may have to wait for years for something to occur which you know should and will occur.
Look at the dot.com bubble. People who did not put money into these stocks were told they were "out of it" and that they just "did not get it".
The traders told them that new technology had changed the rules of the game forever. Now that the internet was here, the sky was the limit. You could pay anything for an internet stock because it would grow, like Jack's beanstalk, to the sky.
But then that fairy tale hit reality. Companies providing free services on the internet turned out to be worth no more than people paid for their services. And the internet bubble blew up in January 2000.
But investors had been forced to endure three years of being laughed at before proven to be right. The dot.com traders finally "got" it and they got it good.
And then there was, of course, the housing bubble. Once again, investors were forced to endure three years of being laughed at again because they did not "get" it. After all, who didn't know that house prices in the United States always go higher. Like Jack's beanstalk.....
But then the housing bubble burst in 2007 and the believers in fairy tales "got" it again.
What are investors waiting for now?
For the next bubble - the US bond market - to burst. Again, it will probably take several years of enduring derision of not "getting" it.
The weavers of fairy tales on Wall Street have created another wonderful delusion. This time it's a scary tale.....
It's a tale of monster called deflation. Deflation as in Japan...nevermind that the demographics in Japan are nothing like those in the United States.
It's a tale of a declining economy and oh my gawd - falling prices! Nerermind that the only falling prices are prices of assets, like houses, that were priced at bubble levels.
Even the US government's own distorted measure, the CPI - consumer price index - shows no scary deflation monster.
Over the past 10 years, the CPI is up 29%. It is only down 0.6% from its record high and yet that is being called deflation.
Yes, and it is such scary deflation that the Federal Reserve must keep rates near zero and everyone must purchase bonds to protect themselves against deflation.
Patience, investors. This bubble will eventually burst and bond holders will "get" what they deserve.