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Consumer Confidence Foretells Economic Crash?


Consumer9

Consumer Confidence

 

Anyone who stops to think about it knows that the fundamental strategy for generating investment profits is to buy an investment when the price is low and sell when that investment’s price is high. The name of that strategy is “buy-low/sell-high”. The difference between the “buy low” price (say, $100) and the “sell high” price (say $300) is the measure of the profit ($200, in this example) made on the investment.

No one seeking investment profits can refute the “buy-low/sell-high” strategy. On considering that strategy, virtually everyone will say, “Well, of course,” or “Obviously” or even “Well, duh”.

However, the buy-low/sell-high” strategy isn’t as simple as it sounds. There’s a problem: investors like to behave like herd animals. We are generally and genetically afraid to act independently. We feel more comfortable believing someone else (especially an “expert”) than we do in trusting our own eyes and ears. Insofar as that tendency is prevalent, investors are prone to ignore the buy-low/sell-high strategy and instead “buy high” (when virtually everyone is buying and says “now’s the time to buy”) and “sell low” (when virtually everyone is selling at a low price). This “sell-low/buy-high” strategy is a sure formula for going broke. I.e., most investors tend to “buy high” (when the investment’s price is $300) and “sell low” (when the price is $100) and thereby suffer a $200 loss.

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