Protecting and growing capital through serial bubbles

An excellent overview today from Charles Hugh-Smith of the Of Two Minds blog starting with this big picture chart of the S&P 500 since 1995:










And these wise observations (which happen to encapsulate the rationale for my firm’s money management approach):

“The serial-bubble economy has a pernicious appeal to debt-serfs and those with minimal financial capital, because each bubble holds out the promise that any debt-serf who manages to catch the ride up and exit at the top can vastly increase his/her wealth, just like the top 1/10th of 1%.

But timing the bubble is not necessarily easy (except in hindsight), and the state of mind required to sell when everyone else is buying must overcome powerful forces in human psychology: the herd instinct, greed, confirmation bias, etc.

Those enabling and extending the bubbles know very few participants will overcome greed and the herd instinct and sell near the top; rather, they will become bagholders of phantom assets that quickly lose value, leaving only the debt to service.

To escape the crushing burden of debt (except for student loans, which are fiendishly difficult to escape), the bagholders must sell out, losing whatever wealth they might have had. Those who sold early have cash to buy the assets on the cheap…”

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