A self-inflicted wound is so sad. Unlike financial blindspots, where you can plead ignorance for your actions, a self-inflicted wound is a willful and always a harmful action that puts you in a worse off situation than before.
As the markets tumble, it’s worth highlighting some self-inflicted wounds that could have prevented this fall. We’ll also learn about other common self-inflicted wounds that may derail one’s journey to financial independence.
Remember, the easiest way to never saying, “if I knew then what I know now,” is to simply listen to people who’ve been there before.
Examples Of Self-Inflicted Wounds
* Jerome Powell, telegraphing more rate hikes in 2019. Despite the S&P 500 already correcting 12%+ from its highs in 2018 given all the data pointing to a slowdown, Jerome decided to raise rates again on Dec 19, 2018, and telegraph another two rate hikes in 2019. Although the market was expecting the Dec 19 rate hike, it had lowered its expectations for any further rate hikes in 2019 to less than 25%. As a result, broader markets went from +1.5% to down ~2% that day, further deepening the sell-off.
Jerome could have taken a wait and see approach to help restore some investor confidence by pausing in December or providing more dovish language for 2019. Alas, he decided to keep stubbornly moving forward in spite the carnage and the expected carnage. Due to pride and a $100M+ net worth, he feared being viewed as a puppet to Trump.
Now, JP will be viewed as one of the most reviled men in the world as millions of investors suffer financial loss. He has hurt his reputation, his family’s reputation, and lost friends in the remaining years of his life. Do you really think his rich friends at the country club are going to give him the time of day next time he pops in for an Arnold Palmer? Of course not.
If the downturn worsens, corporations will be forced to stop hiring and start firing. It’s one thing to lose money in your investment portfolios. It’s another thing to lose money and also lose your job. The livelihoods of millions of people are at stake from Jerome’s refusal to simply take a pause and see what the next quarter’s economic data reveals.
It doesn’t matter whether you think what JP did was right or wrong. The end result was a collapse in the financial markets in the ensuing days. If you had any stocks, you lost big.
* Changing your business model overnight. Zillow is one of the biggest tech disappointments…