Market Update March 3, 2009

“History does not repeat itself exactly, but behavior does.” This quote is from Bob Farrell, noted Wall Street veteran and named the number one market analyst more than 15 times by Institutional Investor.  If there is anyone who can be looked to for a market update, Bob’s your man.

Certainly, we are going through a painful recession but this one isn’t exactly like the last several.   Having said that, its always dangerous to rest on the idea that “this time it’s different” and act accordingly.  This works both ways of course.  When investors told themselves “this time its different” and bought worthless tech stocks at sky-high prices, it ended terribly. Are those who bail out now making the same mistake tech investors made 9 years ago?  Time will tell.

Getting back to Mr. Farrell, we can’t count on history repeating itself exactly but we can count on human behavior remaining the same.  This makes sense since its very difficult to switch your emotions (such as fear) on and off at will.  We can understand when we see people making the same emotional mistakes they do in every bear market – its human nature.

Of course, the best way to overcome emotional mistakes with your money is to first be aware how powerful your emotions are.  It also helps if you rely on investment strategies that work.  As tough as it is,  its best to acknowledge what you feel and then keep your emotions seperate from your logical decision making process.  A tall order, I know, but necessary.