It’s all in the eye of the beholder
By Melvin J. Howard
When the stock market is acting irrational you have to wonder is money and stock real why do we feel that if the stock market is in the dumps we feel that we lost all of our money? “Trillions in stock market value - gone. Trillions in retirement savings - gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll - gone, gone, gone.
"Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago. But if you’re planning to jump out of the nearest ledge I won’t be joining you. You might be disappointed to learn that it was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks are a 'fallacy.' He says the price of a stock has never been the same thing as money - it's simply the 'best guess' of what the stock is worth.
"'It's in people's minds,' Shiller explains. 'We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today - who are very, very few people - are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth.'
"Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000. 'In a sense, $50,000 just disappeared when he said that,' he said. 'But it's all in the mind.'"
Psychology of the Wealthy investor
In my course of business, I have met a number of investors and they all eventually fall into certain categories. No doubt you've noticed that different wealthy people respond very differently to particular situations. One might respond to a sharp market dip by wanting to discuss its causes and ramifications with you at length, for example, while another would prefer that you not talk about it at all. There are distinct personalities that all affluent investors tend to fall into. But it’s all in the mind of the individual investor it is psychology or what I like to refer to as Quantum reality they break down as follows:
Family Stewards
Caring for family is dominant focus conservative in personal and professional life Not very knowledgeable about investing.
Investment Phobics
Confused and frustrated by the responsibility of wealth dislike investing and avoid technical discussion of it choose advisers based on level of personal trust they feel.
Independents
Seek the personal freedom money makes possible feel investing is a necessary means to an end not interested in the process of investing.
The Anonymous
Primarily concerned with confidentiality prize privacy for financial affairs. Likely to concentrate assets with an adviser who protects their privacy.
Moguls
Maintaining control is a primary concern use investing as another way of extending personal power decisive in decisions, rarely look back.
VIPs
Investing results in ability to purchase status possessions place high value on prestige is important like to affiliate with institutions and financial advisers with leading reputations.
Accumulators
Focused on making their portfolios bigger investment performance-oriented tend to live below their means and spend frugally.
Gamblers
Enjoy investing for the excitement of it tend to be very knowledgeable and involved exhibit a high-risk tolerance.
Innovators
Focused on leading-edge products and services sophisticated investors who like complex products tend to be technically savvy and highly educated.
No matter the investor type it is all based on psychology what do you think is the value of something.
