Cash versus Equities chart, bad behavior

[Animorph]

Here's a neat chart from Fidelity (http://myfidelity.members.fidelity....15marecash.dyn?keyword=education&sourcecd=FEA):

Way to go guys, bulk up your cash at the market bottom and hang onto it through a 30% market rise!

I hope most of us are doing a little better. At the very least just holding steady.

I moved to some extra cash in July '07 and I'm living off that and returning some to equities this year. Just about the opposite of this graph.

 

[cute fuzzy bunny]

Pretty much backs up Ladelfina's chart in another thread.

Stuff goes on sale, people rush to buy. Prices go up, people back off.

Unless its equities or real estate. Then its the other way around.

I blame the media. Too much drum banging and fear mongering. Maybe if the news outlets ran some terrorized stories of how flat screen tv's and computers are...oh my god...dropping in price and there seems to be no end to it!!! Follow that with how homes and equities are deeply discounted for the holidays and reaching bargain levels!!!

Maybe you'd get a change in behavior. Eh, maybe not.

 

[walkinwood]

Looks like we haven't hit the sustained peak in the "Bear Market Headline" metric yet. Nice chart.

 

[Notmuchlonger]

Ive stayed full invested and kept shoveling money back into stocks when it became available. I wish I had better market timing skills. I probably do a bit better Ah well at least I wont miss the run up ..if there is one

 

[cute fuzzy bunny]

Looks like we haven't hit the sustained peak in the "Bear Market Headline" metric yet. Nice chart.

We have if its a divot like 1998. But not if its like 2001.

Since we didnt have the sort of run-up that preceded 2001, I'm guessing its gonna be like 1998.

 

[CitricAcid]

Pretty much backs up Ladelfina's chart in another thread.

Stuff goes on sale, people rush to buy. Prices go up, people back off.

Unless its equities or real estate. Then its the other way around.

I blame the media. Too much drum banging and fear mongering. Maybe if the news outlets ran some terrorized stories of how flat screen tv's and computers are...oh my god...dropping in price and there seems to be no end to it!!! Follow that with how homes and equities are deeply discounted for the holidays and reaching bargain levels!!!

Maybe you'd get a change in behavior. Eh, maybe not.

Those goods are used for consumption, however, in their intrinsic value as a good. The argument can be made that it is very irrational for housing because there is an intrinsic value and renting is an option, but stocks are an investment. For whatever reason in human psychology, the masses will want to jump on things when they are overpriced. You are probably right that it is the media who fuel a lot of the problems/fluctuations/volatility in financial markets.


Also, I think some of the effect of Fidelity's crazy range of cash is simply the performance of stocks, not the moving around. This effect at least mitigates some of what looks like ridiculous rebalancing abilities. Example, in September 2000, it looks like they are at about 22% cash and 78% rest. The S&P lost about 40% off of the top for that, and if the money market returns say 3%, then without rebalancing AT ALL you have 33.27% cash. Without rebalancing.

All this reflects is the performance of the stocks during the time, not the rebalancing effects of money.

Don't know if you are specifically talking about Fidelity, but I feel that the investors themselves, if any rebalancing is necessary, are the ones who are putting more of their money in money market funds rather than Fidelity forcing them into it. In other words, the investors are the ones who are making the dumb decisions, Fidelity just facilitates it

 

[cute fuzzy bunny]

I think its a simple matter of people not looking at what something is worth and wanting to buy it when its worth more than it costs, and not wanting to buy i when its worth less than it costs.

Except in the cases of real estate and the stock market, when the media whips people up into a frenzy where they think that everyone is making money except for them by "jumping on the opportunities". The urge to get in on the action exceeds the part of the brain that assesses the relative value of the purchase.

Follow the crowd or you'll be left behind you loser!!!

 

[CitricAcid]

I think its a simple matter of people not looking at what something is worth and wanting to buy it when its worth more than it costs, and not wanting to buy i when its worth less than it costs.

Except in the cases of real estate and the stock market, when the media whips people up into a frenzy where they think that everyone is making money except for them by "jumping on the opportunities". The urge to get in on the action exceeds the part of the brain that assesses the relative value of the purchase.

Follow the crowd or you'll be left behind you loser!!!

Exactly... the idea of real estate and stocks is that above their intrinsic value (as property, where stocks is a claim on the company) is the resale / investment value.

But, this does go into the "value" or "worth" of a good.

Say you see a TV now for $200. It is worth $200 to you with expectation of no resale value. What if they raised the price to $600, but everyone is able to sell the TV at $500 when they're done with it? Thus, the cost to you would only be $100... and part of the value in it is the resale value. This is what gets ridiculously out of control the real estate and stock markets. I don't think this house is "worth" $250... but I believe it is "worth" it to someone else so I might as well buy now and leverage because somebody else will be able to buy it off of me. Resale values, thus, do affect some people's valuation of the commodity (why gold is very treasured in part).

 

[cute fuzzy bunny]

You forgot the part about whether or not the tv is big enough that you could live in the box, and it'd resell for $250k in Stockton. But you'd automatically be 40% underwater, because thats Stockton for ya.