If you could follow your ancestry back 2,000 years, you would be impressed.
You come from a bright and tough stock of humans. That might be surprising if you’re a 90-pound weakling–or if you dine 7 days a week on fatty fast food. But make no mistake. Your lineage was awesome.
Weaker and less intelligent bloodlines died out. Yours didn’t. Yours were strong, smart and lucky enough to attract mates, reproduce, and care for their offspring. They also noticed patterns. If a massive tiger ate one of their friends, they were smart enough to avoid big tigers. If a grizzly bear wanted to eat them for lunch, they had to know how to fight–or run faster than their friends.
They found patterns to survive. Such pattern-seeking tendencies are now part of our DNA. But what was helpful back then is like a poison berry today –especially for investors. We seek financial patterns. If certain stocks or sectors soar, we think they’ll keep rising. When sectors fall or flat-line, we run away in fear. Jason Zweig explains this neurological science in his excellent book, Your Money And Your Brain.
Some time periods, however, are deadlier than others. We’re in one now. Almost everyone is making bucket loads of money, much as they did in the
mid-to-late 1920s and the late 1990s. During those times, reckless investors earned the greatest spoils. They bought stocks on borrowed money. They failed to diversify. During the late 1990s, they stuffed their portfolios with popular tech stocks. For a while, such investors earned blistering returns. But when those blisters popped, they gushed the most blood.
Before such bursts, they mistook luck for genius. That’s happening again now.
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