The Biggest Financial Story of the Past 50 Years

Update: big article in The Guardian.

The Biggest Financial Story of the Past 50 Years, Motley Fool article(s).

Time to dig out our Hitchhiker and glance at the cover: "Don't Panic".
"During the next few days and weeks, the markets promise to be extremely volatile. The response from Wall Street and the financial press will range from euphoric to despondent, and much of the advice you hear will be emotional and short-term in focus."

I won't claim I'm not happy I ignored the hype and stayed out of the stock market.
(On the other hand when the dust settles, this looks like a "buying opportunity".)

The amazing thing is that this always happen after periods of runaway greed and excessive lending... and yet they never see it coming! WTF?

"If there's only one thing you take away from the Lehman Brothers, Merrill Lynch stories of the past few days, let it be this: If it seems too good to be true, it probably is."

That article hinges on what I've learned in recent years: when people tell you that you should expect double-digit returns on your investments, don't believe them. Anytime you get above maybe five percent (and that's before inflation too), you get into risky waters. If you like risk, that's fine, but you must be aware that you're taking it on.

One must realize that THE ECONOMY CAN'T GROW TEN PERCENT PER YEAR. If it does, there's some kind of bubble. Why? Because money is based on real products, and the overall factories, people, education, etc, just can't grow that fast.

In other words, unless you're a gambler, you'll just have to face that a couple percent above inflation is all you can expect. I just settled down for that after I realized that I got bored thinking about money after a while.

(Note, I updated that article today.)

"The average company increases earnings only about 4% to 6% a year. That's far lower than most investors presume. Maybe the media devote too much coverage to the most rapidly growing companies; maybe we're just a bunch of eternal optimists. But perpetual earnings growth of 10% to 15% -- the kind of growth Wall Street analysts often assume -- is extraordinarily hard to find." Article.