Sunday, February 22, 2009

Long Way to Zero

Some people like to buy stocks after they've substantially gone down in value. Sometimes the thought is, that after the stock has already depreciated it's less risky. But that's a mistake. No matter where is now or where it came from, it can always depreciate by 10%. And another 10%. And again, and again, and again. As the Wall Street-cliche has it, it's a long way to zero.

I was thinking about this in reading a post by David Henderson at Econlog. It seems like the current Administration and to a substantial extent the voters have given themselves to try just about anything to "fix" the recession on the theory that things can't get any worse. One thing that has me particularly distressed about our current economic misfortunes is that Americans at large still in my opinion have very little perception of the tremendous economic value that we still have, and how close we are to losing it.

1 comment:

..|Ultra911|.. said...

That's why shorting stocks is really fun. Stocks are 3x more likely to go down faster than go up. Sadly most unsophisticated investors only know how to buy stocks, and aren't very disciplined with their money management. Trusting idiot advisors is another pitfall too. The shortest short cut is learning yourself.