Before giving you my solution it is important to understand why what happened happened – an awkwardly constructed sentence, but you understand what I mean.
Why did the stock markets crash in 2008?
The ‘experts’ will say there is no simple answer to this question (see The Expert Opinion), and in a way they are right, for once! There are a number of interrelated causes , but there is one underlying reason for the crash: the stock exchange gamblers.
Gamblers? Surely investing on the stock exchange is not gambling. Well, if you’ve ever read any of the too numerous texts on theories of how the stock markets work (not something I would recommend unless you really have nothing else better to do with your life) you’ll find words like ‘speculator’ and ‘punter’. The word ‘punter’ is used in Great Britain and Australia to mean a gambler. It’s these gamblers, looking for short-term profit, that cause the stock market indices (e.g. The DOW) to go up and down and sometimes (too often) to crash.
Although I personally do not find much thrill in gambling, I have nothing against it: However, the stock exchange gamblers are not only risking their money, but their bets have an effect on you and me.
Not all people who invest in shares are gamblers. Many people are interested in sharing in the long-term success of a company: that’s why the original stock markets were formed. In fact, the number of real gamblers is small, BUT they have a massive effect on the price of shares, and hence the value of other people’s, yours and mine, investments, savings, and pensions.
What is surprising to me is that the gamblers seem to have been accepted as part of the way the stock markets work today.
I agree with Warren Buffet “… according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.”