Why is it that people have the memory of gnats?

Forget that they don’t remember the drubbing that the Democratic Party took in the 2010 mid-term elections, but they don’t remember the really important stuff – stuff that has to do with money. I just don’t get that.

Of course it probably doesn’t help that the media doesn’t so much report on the financial markets, as use them as a weapon to beat up anyone they don’t like. Mostly because they too have the memories of gnats, and they don’t understand enough math to balance their check books, let alone explain the derivatives market.

So along about the 2nd or 3rd week in December, the media, and the sheep that follow them looked at the Dow Jones Industrial Average – it is the only measure of the markets they know without looking – and saw this big dip. Why was this happening? “It’s all Trump’s fault!” (Pay no attention to what the Fed is doing to interest rates. The Fed really is “the man behind the curtain.”) They don’t know what a correction is. They don’t know what tax selling is – because they don’t do it. (If all your investments are in mutual funds, you have no control over your taxes.)

Click the image for a larger view, and you can find up to the minute info on the Dow 30 at this link. (Well, it is probably actually delayed 15 minutes when the markets are open.)

But people who actually manage portfolios – their own, or other peoples – looked at what was happening, considered the lessons of history, and decided to cut losses and save on taxes. From the view of those ignorant of history (or at least of the history of financial markets), the last week of December must have looked like the end of the world. It wasn’t the end of the world. By selling anything you had at a loss, you can impact your taxes. (While I’m not a tax person or an investment advisor, my understanding is that an uninsured loss – like a capital loss – can be carried forward as much as 3 years. I do know you can write it off in the year in question.) So cutting your losses in a down year, can make sense. I think – though am not sure – there is a minimum time you have to wait before buying the stock back, but I usually sell stock that have lost faith in.

So if the end of December looked like the end of the world, what does the middle of January look like? Sure, we are still in a correction, and maybe it is the start of a bull market, but if you only look at the Year-to-Date numbers, the markets look pretty damn good.

‡ A Quiz on the history of markets and investing after the break.

  1. When was Black Monday? (Hint: there were 2 days that have been described as Black Monday, I am interested in the most recent 1)
  2. When was Black Thursday?
  3. When was Black Tuesday?
  4. What was the “Uptick Rule?”
  5. What do people mean when they say that dividends are double taxed?
  6. What is the principle equation that defines a balance sheet?
  7. What happens to a bond’s yield when its price increases?

List your answers in the comments. Or I will add my answers later.

Here is an 1 month view of the Dow Jones Industrial Average.

2 thoughts on “Why is it that people have the memory of gnats?

  1. When was Black Monday? (Hint: there were 2 days that have been described as Black Monday, I am interested in the most recent 1)

    October 1987 (the 19th, but I had to look that part up.) The Dow lost 22 or 23 percent of its value.

    When was Black Thursday?

    October 24th 1929 – the start of the Great Crash.

    When was Black Tuesday?

    October 29th 1929 – the end of the Great Crash (Oct 28, 1929 was the previous Black Monday)

    What was the “Uptick Rule?”

    You could only sell a stock short after it had an uptick in price. Kept people from “piling on” and forcing a stock price lower.

    What do people mean when they say that dividends are double taxed?

    Profits are taxed at the corporate rate, then dispersed to the owners of the company and taxed again.

    What is the principle equation that defines a balance sheet?

    Assets = Liabilities + Owners’ Equity.

    What happens to a bond’s yield when its price increases?

    The yield goes down.

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    • I’m not sure why I threw those last 2 questions in there, but you would be amazed at how many people have trouble with both of them.

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