Monday, October 27, 2008

Where there's smoke...

What is happening in the US Economy and the stock market? How bad could this get? Is the worst almost over? Don't we wish we all knew. Here is the analogy I have been giving to clients.

So far all we know is that we do not have an out of control forest fire. Could we? Who knows. But there is plenty of smoke in the air.

What would you do if you smelled something burning in a crowded theater and happened to have the seats farthest away from the exit? Maybe the person next to you has cigarette smoke on their clothes, or has been burning leaves. Maybe someone lit a cigarette. Maybe it is burnt popcorn. Would you yell, "FIRE!"?

Don't wait to figure it out to take action, because in the case of a once in a lifetime event (which this economic scenario already is) no one has a better sense of smell than anyone else. But if we are willing to inconvenience ourselves a little more than others, we can be ahead of the game with very little sacrifice.

To continue the analogy the wise thing would be to tell your loved one to get up and go to the back of the theater and wait for you. Shortly after they leave, you do as well and simply stand by the back door and continue to watch the movie. Leave your coat to avoid causing the crisis you hope to avoid for your safety. People will think you are going to the bathroom or getting a drink. Now watch the movie standing at the back by the doors. And if someone yells, simply turn and walk out. The worst that can happen to you is losing your coat and the discomfort of standing up watching some of the movie. Much better than the worst case scenario of sitting restlessly in your seat. If the smoke goes away, return to your seat.

In the case of this economic smoke, if you display a crisis mentality, you will cause one, even if unfounded--just like in the movie theater.