Wednesday, July 16, 2008

The Phases of Stock Talk

The performance of the stock market affects the way people talk about stocks in interesting ways. In my roughly 20-year investing career, I’ve seen the kinds of discussions the average person has about stocks go through several phases.

During the bull run of the latter 90’s, everyone was a stock picker. Even if they didn’t actually invest any money, they had strong opinions about which stocks were the right ones to buy. Few people looked at anything other than recent stock performance, but they had opinions on the future of stock prices anyway.

After the bubble burst, people still talked about stocks, but discussions centered on the question of when the stock market would start going back up. Many people had unjustified confidence in their guess of how long it would take.

The next phase was where people didn’t talk about their investments at all. When their account statements came in the mail, many people didn’t even open them. We are getting into this phase again now that the stock market has continued to drop.

Curiously, for someone who is a stock picker, now is exactly the right time to be examining stocks to find some good companies that have been beaten down unfairly. I still think that most people are better off indexing, but if you are ever going to pick individual stocks, now is the time, right when most people would rather think about anything else.

Whether it takes a year or ten years, stocks will eventually have another bull run. When this happens and just about all stocks become overpriced, we’ll all become stock pickers again.


  1. Thicken My Wallet: Maybe all the talk around the water-cooler will switch to gold! Not that I'm a fan of investing in gold, but people tend to talk about whatever is up.

    1. The comment above is a reply to Thicken My Wallet's comment:

      I wonder with the stock market and real estate market performing poorly what anyone will have to talk about around the personal finance water-cooler.

  2. This is a great post michael. So true, and even though I did not follow stocks before about 2004, I absolutely think this is the case.

  3. MG: Thanks for the kind words. Having seen this phase of investor attitudes twice now, I think I'll recognize it in the future as well.