I believe that the excesses of the financial crisis our economy faced last autumn and earlier this year can be traced back to the returns that investors began to expect during the "dot-com boom." During this time, people could throw a dart at a list of technology companies and get a double-digit return.
I am certainly exaggerating, but the point is that returns were not in line with financial data. Additional, these astronomical returns fed into the frenzy over one sector of the economy. When reality set in in the early part of this decade, investors looked for the "next big thing," fueling a shift in "irrational exuberance" from tech to real estate. The danger in this was/is the leverage involved. Lenders wrote bad loans. Wall Street itched to get involved, thus the securitization of these sub-prime loans, passing along derivitives to investors--instead of reducing risk, this actually exacerbated the risk.
Inordinate performance is simply unsustainable. Investing is not a sexy business, especially if investors stay true to their risk tolerance and general appetite for risk. Our culture of immediate performance does not align with a steady investment return. Patience and discipline are the basis of sound investment decisions.
I am certainly exaggerating, but the point is that returns were not in line with financial data. Additional, these astronomical returns fed into the frenzy over one sector of the economy. When reality set in in the early part of this decade, investors looked for the "next big thing," fueling a shift in "irrational exuberance" from tech to real estate. The danger in this was/is the leverage involved. Lenders wrote bad loans. Wall Street itched to get involved, thus the securitization of these sub-prime loans, passing along derivitives to investors--instead of reducing risk, this actually exacerbated the risk.
Inordinate performance is simply unsustainable. Investing is not a sexy business, especially if investors stay true to their risk tolerance and general appetite for risk. Our culture of immediate performance does not align with a steady investment return. Patience and discipline are the basis of sound investment decisions.
