One thing that fascinates me about the credit crisis, sharemarket plummet, global woe and gloom is the fact that the average person has basically no control at all over this process.
They can be diversified in markets and asset classes, do all the ‘right’ things, and still lose lots of money. They can have bought a house with a reasonable mortgage, and although they probably wont go bankrupt, they will still have a rapidly decreasing net worth.
And the funny thing was, no-one (except possibly, Warren Buffet, when he expressed his dislike of financial derivatives in 2003) predicted the problem. WTF? No one? I mean… this is like a once every 100 year massive train wreck. Were there no signs, no screeching of breaks?
Evidentally not. So what does it mean? Well, it seems to mean that assessing risk in share and property markets, the main vehicles for investment outside banks, is … well… essentially unknowable. Not only for the average joe, but also for the experts in the system. And the unfortunate corollary of that is that if risk is unknowable, then price in unknowable as well.
Which makes rational investing basically impossible. So everyone should invest in gold and of course, AK 47s to protect it. Where can I buy shares in Kalashnikov?