Wall Street’s Most Lethal Fallacies

Wall Street has its own less helpful spin on “live and learn.” It’s “read and retch.” So much of what we hear and read from so-called experts is simply garbage. Worst of all, it can lead to bad investment decisions.

So be careful out there. Question everything. And come to your own conclusions in your own time. We’ve been asked to swallow some whoppers. Do these sound familiar?

1. Home prices never fall. After we saw the real estate market crash in Japan in the late 1980s, how could we fall for this one? But fall we did.

2. The housing and credit crisis is over. Not true a year ago, six months ago, or now. It will continue to plague the economy for the rest of the year… at least.

3. Stock markets go up in the long run. This is true if the long run means 15 years or more. But markets can remain flat or down for over a decade at a time. That’s no blip in my book.

4. Bank stocks will be supported by their dividends. Was this wishful thinking or just plain naivete? Citibank, Washington Mutual, KeyCorp, and others have cut dividends. Many more banks will follow.
It’s not easy to figure out what’s true and what isn’t. Keep reading and listening. But most important, stick to what you know as much as you can. It may be boring… but it’s also much safer.

[Ed. Note: Andrew Gordon, ETR’s Investment Director, recommends that you stick to what you know. If you know that you can still make money – even in this sagging economy – you’re on the right track. Learn how you can get your portion of a $300 billion cash pile looking for a home.]