This is the second piece in a four part series on decision-making traps common to both love and money.
The oft-tossed about statistic about half of marriages ending in divorce is a little misleading. In reality, less than half of first marriages end in a split, but 67% of second marriages and 73% of third marriages end in divorce.
There are certainly a number of things that make second and third marriages difficult but foremost among them is the tendency to rebound without accurately addressing the problems underlying the past failure. Dating coaches call this “Liz Taylor Syndrome”, psychologists call it “New Era Thinking” – a belief that the unique circumstances of a given age have made the economy bulletproof. Each generation has an interest in preserving their legacy and being the ones that “figured it out.” At times when I start to fall into New Era thinking, I like to remind myself that we are only a few hundred years removed from the notion that womens’ reproductive systems would atrophy if they read too many books.
Four hundred years ago, in one of the first speculative bubbles on record, a Dutch commodity traded for 10 times the annual salary of a skilled laborer. In some cases, this commodity fetched as much as 12 acres of prime farm land and even single family dwellings. The commodity of which I’m speaking is a single tulip bulb. You see, it was thought that tulips were an investment that would always appreciate in value and were immune to the ups and downs of comparable tradable goods.
Fast forward three hundred years to 1925 and you would have heard statements like this from the investment gurus of the day…”there is nothing that can be foreseen to prevent an unprecedented era of prosperity.” Sure there had been disastrous crashes in the past, but this time was different.
It’s comforting to think of New Era Thinking as a relic of the past, a trick of the mind that fooled investors less savvy than ourselves. But as recently as the Great Recession of the past four years and the tech bubble of the turn of the century, New Era Thinking has been more present than ever. The advent of the internet was greeted by Wall Street with great enthusiasm. The thought that the web would revolutionize the way we do business was largely correct, but the notion that financial fundamentals no longer mattered was not. In 1998, eToys.com, an internet upstart, had sales of $30M, profits of -$28.6M and a total stock value of $8 billion. Toy veteran Toy’s R Us on the other hand, had more than 40 times the sales but only ¾ of the total stock value.
I’d guess that many of you are shaking your heads at the absurdity of this, but as long as irrational people are involved, this time is gonna be kind of like the next time and the time after that. Wherever you go, there you are.