Are we ’emotionally equipped’ to invest wisely?
Here's the problem with investing: Most of us don't know how to do it.
That's Joe Nocera's take, anyway. The New York Times columnist holds court on a number of investing topics in this National Public Radio podcast.
Sure, he says, investing is easy when the market is up; toss a dart in any direction and you're bound to hit a stock on the rise. During leaner times on Wall Street, though, investing requires more finesse, and most of us don't have it. All the proof you need can be found in the tech boom of the late 1990s. Most of us knew Internet stocks were too high and were bound to fall, but we didn't follow our intuition. Why?
"It's hard to zig when everyone else is zagging," says Nocera. "It's hard to sell when everyone else is buying. It's very hard emotionally not to get caught up in the madness of crowds. ... People like Warren Buffett who have the iron stomach to go against the crowd are few and far between."
So what's the answer? Nocera says baby boomers know. "I think many baby boomers who thought they could outsmart the market and make a lot of money have discovered that they need help," he said.
I don't agree with all of Nocera's thoughts. He makes it sound like American investors are nothing more than a bunch of lemmings headed for the cliff, and I think that most of us are smarter than that. But I wholeheartedly agree that most of us need help with our investments. I know I do, anyway. Our CPA is our family's most important advisor.
What do you think of Nocera's theory? Do American investors let their emotions get the better of them?
While you're thinking, here are a few financial literacy resources that might prove helpful: