Irrational investors, rational conclusions

There was an interesting article in the National Post written by Peter Hodson, about how investors think the stock market is irrational.  He points out that the average investor behaves in a way contrary to their financial health by buying and selling at the wrong times.  He also points out that if there is a rational conclusion to a question you are examining, then you should not bet against it, especially in the long term.   He cites four major things many people worry about today and provides rational positive outcomes to these worrisome problems.

The U.S. debt crisis: he points out that while the U.S. government is spending far beyond its means, that the government will raise the debt ceiling and print more money to get out of the problem.  While this is not a good thing because it causes inflation and harms both citizens and debt investors, it can be done.

The European debt crisis: while Greece cannot print money to avoid its debt problem, the other Euro countries do not want the system to fail and so will do what is needed to solve the problem.  Greece has a very small economy compared to the European Union as a whole.

Interest rates: although it seems that interest rates can only go up, and while this would have some negative effects, it seems unlikely to happen any time soon or to happen quickly, so people will have time to adapt.

Earnings:while investors are fretting about company earnings, the actual reported earnings continue to be good and improve, while companies have historically huge cash balances – so things are not so bad after all. 

Hodson suggests that investors try to react to nasty headlines like Mr. Spock from Star Trek and see that “you are most likely to find logic works way better in the stock market than  irrationality”.