Human nature is a killer. In the heyday of early beginnings, our instincts were the most important factor in staying alive. Our early brothers and sisters had to react instinctively when danger came lurking on the radar of their developing consciousness. That, in order to stay alive.
The instinct that kept our early brothers and sisters alive, has in time become our greatest enemy and a heavy burden to carry in the process of staying alive in modern times. Our bodies remember the lessons told through the ages, and still react immediately on coldness against the skin, intense heat drying out the moisture of our eyes and the sense of a dark figure lurking around a corner.
But life has become much more complicated in time. Great advances in the sophistication of society brought different risks and no less danger. This new animal is amorph and we have created it. And greed played no small part in putting these animals into deadly play.
After a prolonged time of bartering for goods, we created abstract systems to make it easier to trade our various products. It made life much easier, but then it got a life of its own. An animal with so many sides, that one could get no hunter’s advantage on it. It started to carry us along and we fed it with our greed.
The economic cycle is natural to life. Things go up, and things go down. Sometimes there were great overflows of too much grain produced, followed by undersupply when either too many farmers changed to a different product in hope of getting better returns on their heavy loaded efforts, or nature just changed its course and left previous victors reduced to struggling sub-players. Be it grain, gold, property, IT shares or bulbs, their value will go up and then at some stage their value will go down. Many factors will contribute to constant uncertainty about the ways to tackle the next phase of our wobbling world and there will often be unforeseen consequences.
And we earthly wanderers will be playing along to gain some advantage out of all the ups and downs of products, assets and concepts. We need to participate because we have to feed the family and house them and clothe them. And quite often, when we think about how hard we work to feed the little beaks, the constant struggle to improve a house, the never ending medical bills, the paying of school fees, etc., the urge will become more and more compelling to find an easier way to ease off financial woes. That is when one starts to look around for easier ways to make money.
Recently one would have seen and heard how many people made fortunes out of investing in property. And the fact that many of these people were ordinary workers with no great expertise, would have been motivation to indulge on one’s own capacity into the gold mine that was property. There is nothing wrong with finding ways to improve one’s financial position, but too many people overdo it completely and erase all their gains in their quest for super profits.
Greed tends to feed on itself and either knowingly or unknowingly, we start to take risks to do even better than the initial successes. When interest rates continued to increase and every Tom, Dick and Harry became either property developers or property investors, we should have seen the red lights flickering. Many did not, and at some point it became extremely clear that the good times were over. The problem is that although one could conceptually realized that the party was over, it took quite a while before the knowledge got to one’s gut. It was only when that started to happen, that the old self-protective instinct became active again. For many it would have been too late and they are suffering under the bombardment of high repayments on bonds and the realization that property prices are continuing to dwindle in growth.
Human instinct did not come into the picture when things were going smoothly or when it was getting too late to change position. The instinctual reaction was still that ‘this feels good’ as it yet had to touch the bare skin. It remained like that, ending in a very tricky situation. Now people are experiencing the painful financial position and there are not a lot of ways to soften that. It has to be endured and we have to sit it out.
Fear is felt, discomfort is the order of day and that survival instinct is once again registering many dangers. In order to soften the pain, the fear and the discomfort, we will easily let go of solid assets at bargain prices just to feel better.
Who will be buying them? Some sharp people, who have realized the cyclical tendency of the economy, will not be scared by the instinct that screams of the dangers all around and they will be buying when everybody else is stagnating or selling. They will be buying at the right time, at the right prices and they will be sitting back, waiting for the mood to turn optimistic again. They will be doing this, because they know that at some point people will turn positive again and the buying spree will start all over again. And then they will go with the flow and when the frenzy starts up again, they will be selling to the crowd the bargains bought before at new market related prices. And the Kingstone Trio will once again be singing in the background "...when will they ever learn, when will they ever learn?".
The "antiquated" human instinct overreacts when the times are good and it will overreact when the times are bad. Experienced people realize this and they will keep on riding trends in a different manner.
Right now their gunpowder will be dry and right through 2008 they will be buying property at extremely enticing prices and then they will be waiting for the next wave to pocket their profits.
One should get used to listening differently to screams of joy at the top of the economic cycle. That scream of joy will be pitching and then it will turn into moaning and then into howling. One would be well advised to make investing and disinvesting decisions based on directly opposite ways to how the masses will respond to these impulses. When they scream in joy, sell. When they scream in horror, buy. That is the contrarian way, and it works perfectly well in combination with wise timing.
Wim van der Walt
7 January 2008