Friday, October 10, 2008


This will be something to tell your grandkids about.

It's obvious now that our economy was propped up on a mortgage bubble that made people feel more wealthy than they actually were, and this probably affected the prices of all kinds of things beyond houses - including stocks. However, every stock market bubble also requires some kind of fake justification in order to form, because even rich people don't want to buy something that they think is worthless. The 2000 tech bubble was propelled by creative earnings calculations (Enron for example) and by an awe for all things dot-com, as if human enterprise would suddenly expand at breakneck speed because clicking had replaced the mail order catalog. The buyback bubble that's almost in our rear view mirror was justified by "experts" who assured us that higher stock prices - inflated by share repurchases - were just as good as the dividends we used to collect.

When it comes to investing, nothing beats simple cash payments from profitable corporations to stockholders. As the old saying goes: a bird in the hand (cash dividend) is worth two in the bush (expensive unsold stocks).


Anonymous said...

Wow, that's probably the most positive and hope inspiring comment I've seen regarding the market crash. It presents the drop as a return to more normal and natural market state. I guess it is easier for me to see it this way. A month ago I ignored the calls to "stay the course" and moved everything to cash.


Jody said...

Good job, Oleg!