Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance by Cullen Roche

Author:Cullen Roche [Roche, Cullen]
Language: eng
Format: epub
Tags: Business & Economics, Investments & Securities, General, Economics, Macroeconomics
ISBN: 9781137438065
Google: UjcGAwAAQBAJ
Amazon: B01L988EGI
Publisher: St. Martin's Press
Published: 2014-07-07T18:30:00+00:00

Figure 6.3: Stocks Climb a “Wall of Worry”

Since 1855 the US economy has been in recession a full 30 percent of the time. Since 1945 the US economy has been in recession 16.2 percent of the time. Since 1980 we have been in recession 14.6 percent of the time. Since 2000 we have been in recession 18.3 percent of the time. The flip side of course is that the economy has been in expansion 83.8 percent of the time since 1945, 85.4 percent of the time since 1980, and 81.7 percent since 2000.8 Those are big numbers. And anyone who bets on perpetual doom and gloom must realize the poor odds they have to overcome.

This bad bet against humanity hasn’t stopped the fear machine from rolling forward. As I said, there’s big money in fear. I keep hammering on the point that you will make your own financial success by investing in your own personal development. And in order to do that you have to have a certain level of confidence that you have something positive to contribute to the world. In other words you have to be willing to take a certain amount of risk in order to benefit from this. You have to be willing to thrust yourself out into the world to prove to everyone that they need what you have to offer. That takes courage. Living in fear and being frozen by your own emotions will always hold you back.

Now, this doesn’t mean you should be reckless. I say be a measured optimist. Be an optimist who views the world with skepticism and questions their surroundings. Don’t be only a risk taker but be a risk manager as well. Question conventional wisdom and challenge those around you. That doesn’t mean you are working against humanity. It simply means you are challenging the boundaries at which we seem to always constrain ourselves. But never forget that those selling fear probably are not out to serve your best interests in the long run. They are most likely serving their own inherently negative biases and self-interests in the hope that you will buy into their agenda.

Be wary of those selling fear, and be particularly wary of letting your own fear hold you back. Of course this doesn’t mean you should be recklessly optimistic. The US economy and the global economy have and will encounter substantial turbulence in the future. But don’t let your emotions paralyze your potential production.

Ten Biases That Inhibit Our Understanding of Money, Finance, and Economics

As emotional and often irrational animals we all suffer inherent biases. They’re extremely difficult to overcome, but once we identify them we can train our minds to recognize environments in which we are prone to being biased. Many of the common biases we suffer from include

The better-than-average effect—The better-than-average effect is the illusion that we are better at certain things than we actually are. A 1999 study by Justin Kruger and David Dunning found that the bottom 12 percent of workers ranked themselves in the top 62 percent of workers.

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