Investments are Not Like People’s Lives

An interesting way to think of Investments is that they are not like people’s lives.

When you see investment values heading down, as you may have seen recently, you may assume that they’ll continue heading in that direction.

The same was true when investment values went up, right? “House prices never go down“. “I don’t need 200% in Internet stocks, I’m happy with 40% returns in safer stocks“.

It’s called extrapolation. We take some information (the most recent information seems most important) and try to make predictions. We assume that if stocks have been heading down, they’ll keep going down forever – until they reach zero.

Your Blood Pressure at Zero

We assume that investments are like human life. When your blood pressure heads down towards zero and eventually reaches it, you’re dead. Nothing will bring you back, except in a few rare cases where somebody with medical knowledge and equipment can revive you.

Investments are not like that. They go up and down. Just because they’re valued (or heading) near zero does not mean they’re worthless or that their life is over. For good.

Unlike life, which is subject to physical and biological laws, investments are subject to human emotion. They may seem worthless now, but they may not be later.

Will they ever come back? Which ones will come back? Nobody knows. However, I’m certain that investment values just reflect how buyers and sellers feel today. There will be different buyers and sellers in the markets tomorrow and 10 years from now.