Wednesday, 27 January 2010

The Economic Climate (12): The UNPREDICTABLE Economic Climate and the Investor

From the Great Depression to 1995, US had nine recessionsSo in your lifetime, you're likely to be subjected to a dozen or more. 

Each time it happens, you'll hear from the reporters and the TV commentators that the country is falling apart and that owning stocks is too risky. 

The thing to remember is that we've wiggled out of every recession since the one that turned into the Great Depression.

Reviewing the period from the Great Depressions to 1995 shows that
  • the average recession lasts 11 months and 1.62 million jobs are lost, while
  • the average recovery lasts 50 months and 9.24 million jobs are created.

The seasoned investor realizes that stock prices may drop
  • in anticipation of a recession, or because
  • Wall Street is worried about inflation
But there's no sense in trying to anticipate either predicament, because the economic climate is unpredictable. 

You have to have faith that inflation will cool down eventually, and that recessions will thaw out.

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