Myth: Falling Markets Threaten Your Wealth
Let’s pretend it’s the early days of oceanic exploration and you’re a ship captain.
Each week, you and your fellow captains meet with a master weather prognosticator and he tells you that it might storm… some day… while you’re out to sea.
Most of the other captains won’t venture out. But, you have an insight. Of course, bad weather is “always” a possibility, but if you can avoid the weather or withstand it, you will have an advantage of other captains who are stuck back on the docks.
That’s not too different from making money in bad markets. Indeed, the chance of making money increases during bad markets because the perception of risks increases without the actual increase of risk.
And this promotes the following wealth-generating scenarios:
- Assets fall in value, making them cheaper.
- Shorting assets, or making money when assets drop in price, can reward an investor with larger returns
- Trading is rewarded through circulation, not directional investments. Money may move from stocks to bonds, for example. In other words, money, like energy, isn’t destroyed, it just changes form.
The myth that falling markets threaten your wealth doesn’t teach this at all. It teaches you to abandon hope, dig a hole in the sand, and stick your head in said sand. This will only make you more dependent–and get sand in your eyes.
It’s not the market, or its direction, that threatens your wealth; it is your reaction to the market conditions.
Instead, you should ride out the storm and look for opportunities to increase your wealth. Because they’re there.
This is the first post in a series about financial myths that make you poor. For more information, you might want to read the previous article in this series. It’s called: Myth: Retirement Accounts Are Designed To Help You Retire Early.
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- Myth: Only Full-Time Traders Make Money
- Myth: Your Tax Return Is Free Money
- The Secret Of The Wealth Singularity
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- The Job Myth: Jobs, Security, And Wealth
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
