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I can’t say I was shocked.

People know to buy low and sell high, but most people can’t find the emotional disassociation to do so. They just aren’t cold-blooded enough to deny their greed or fear and follow core economic principals.

If you told people homes that were $150,000 and are $300,000 today won’t go up much more, nobody would buy one. They are logical enough to follow the buy low/sell high rules when they seem them. The problem is, after watching houses go from $150,000 to $300,000, they can’t control their emotions and they FEAR they will be priced out of the market, while they jealously watch friends, neighbors and family grow rich. They doubt themselves and buy at peak, then are shocked to their own blindness when prices fall.

I have posted repeatedly that stocks were going to fall and stated I took my money out of stocks in Dec. 2006 (a little too early — I admit). For months afterward, as the market dipped, people posted that the dips were wonderful buying opportunities. By the time the markets hit bear market territory, we were starting to see people post here “I moved all my investments into cash” or “should I get out of the market and move to cash”.

So the same was true here. If I could prove that the S&P was going to decline from 1550 to 1100, people would have sold out 1550. If I could have proved that Fannie and Freddie and Citi and Wamu were going to lose 80+% of their value, people would have sold. They aren’t dumb. They KNOW to buy low and sell high.

Yet, if you read the posts here, you read that people were getting out of stocks and into cash when we hit bear market territory, and obviously that was somewhat too late. (I say somewhat, because I still expect the S&P to hit 1100 or even 1000 before turning around and heading back up). But the point is, those people were selling low. Emotion got to them. The lost 20% and feared greater losses, so they sold out. So far it hasn’t hurt them. They can buy back most stocks for the prices they sold. Most haven’t exactly “wowed” the markets since then.

My point is, I’m not at all surprised people bought homes at peak and sold stocks at the interim low. People know academically to buy low and sell high. But we are emotional creatures and most people tend to get greedy during upswings and buy at peaks, and get fearful during crashes and sell at troughs. Just human nature...