The Irrational Market

November 24, 2008
Special Feature

On the day 12 years ago when Alan Greenspan made his famous "irrational exuberance" remark, the stock market averages were surprisingly close to where they are today: the Dow was just under 6,500, and the S&P was at 744. While today’s markets are certainly irrational, though, some Wall Street analysts are calling it irrational despair.

On the day 12 years ago when Alan Greenspan made his famous “irrational exuberance” remark, the stock market averages were surprisingly close to where they are today:the Dow was just under 6,500, and the S&P was at 744. While today’s markets are certainly irrational, though, some Wall Street analysts are calling it irrational despair. Mr. Market, as famed investment guru Warren Buffett once described the stock market, is a manic-depressive and, on most days lately, that description has been right on.

For a while, market analysts saw a market bottom in each sharp upswing and predicted a broad-based rally on the horizon, only to see the market cave again the next day. Now, in a market where triple-digit swings are the rule rather than the exception, even some veteran Wall Street watchers are throwing in the towel, admitting that there’s no way to predict which way the market will head next.

Many agree, however, that the best strategy for the individual investor is to avoid the panic that has taken over the market. Hunker down and stay the course. Don’t sell, and if you buy, nibble—don’t gulp. Even professional investors who bought shares they thought were incredibly cheap found that they were incredibly cheaper a few days later.

In the meantime, consumer experts have a few bits of simple financial advice to help you weather the recession: spend less, save more, and pay down debt. If they sound familiar, it may be because those same consumer experts were making those same recommendations long before the current fiscal crisis appeared on the radar.