As the DOW marches towards 11,000 and the voices predicting financial collapse fade, does this mean the gloom bubble has finally burst? Was the perspective of being overly negative simply incorrect? It's an important question and the answer is equally important.
The great recession of 2008 showed us that leverage unchecked is a recipe for disaster. There is no disputing this perspective. It is also clear that the world economy will take many years to recover from this massive margin party. Sober perspectives have crashed their way into the unreasonably euphoric brains of many market participants. Finally some rational thinking is making its way into the world.
However, rational thinking does not justify dogmatic negative hysteria.
Slower growth does not mean collapse.
It means slower growth. And as the recovery continues, the voice of panic from negative pundits has suddenly gone rather quiet.
It was a "Chicken Little" senario - "The sky is falling..." - what we are hearing now is - it might fall 10 years from now. Perhaps it will some time in the future but, in the meantime, what should our investment temperment be? What should our perspective be in this rapidly changing, chaotic world?
Be prudent not hysterical - It's important to watch for danger and be cautious in one's perspective, particularly when dealing with money. There's nothing wrong with prudence. The same goes for any daily activity really. When you are driving a car and come to an intersection it makes sense to look both ways before proceeding, right? That's prudent. What is not prudent is never leaving your house and never driving because of what might happen. Being paralyzed by fear over what might occur leads to inaction. In an investment strategy, inaction gets you nowhere; its investing based on fear not opportunity.
Pay attention closely - As an investor, look at your portfolio as a dynamic group of assets needing constant attention. Don't freeze at the intersection and do nothing. Make tactical adjustments weighing the risks, as well as the benefits.
Balance is the key - A balanced perspective is what matters. Being too negative or positive isn't healthy for your net worth. Plan for negative and positive outcomes. Diversify. Shift and adjust as conditions dictate and don't stay frozen in inaction.
Certainly, it will not be all sunshine and good news on the financial horizon for many years. With high deficits and de-leveraging, the day of reckoning has come. Everyone, individuals and businesses, must live within their means. Even governments will have to do the same. The free market will force them to or they will pay the price; just like Greece.
But this doesn't mean that the world is ending. Economies are more resilient that some have proclaimed. And recovery will happen; the cycle will swing the other way and growth will return. Yes, it will be slow growth for sure. But the world is not collapsing. And it's time that even the most cynical recognize it's not.
Your future investment judgments depend on your outlook and views. And after a chorus of grim chants, its not easy to stay balanced. But to remain in a skewed world of doom has its price. If one is mired in a tar pit of gloom it does not make for a nimble investment perspective.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm ( He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at firstname.lastname@example.org.