Given the previous commandment, I would be the last person to predict the market’s direction in the coming years. What seems reasonably safe to assume, however, is that we will see a market that reflects the fast-changing, world-shaking events of our era. I don’t believe I’m going out on a limb when I suggest that the market is going to be full of surprises, that stocks everyone believed would do well will experience sudden downturns and stocks that no one had high expectations for will become big winners. Funds that have performed well for years will slide down a notch and turn in mediocre performances, and a little-known fund will become the hottest one on the Street.

In other words, the market will continue to be its unpredictable self, only more so. Given the increasing tension between nations, the continued terrorist threat, the interconnected global marketplace, the increasing demand for energy, the deficit spending of the U.S. government, and the looming environmental problems around the world, it doesn’t take a genius to suggest that we live in uncertain, volatile times, and that the market reflects these times. On top of that, in excess of $1 trillion is in actively managed hedge funds, and this money will flow to any market where there is opportunity. Unlike mutual funds, this money can turn over with great speed. In addition, much of this money is leveraged—more funds are borrowed to increase the return of these bets. This “leverage in the system” will have a tremendous impact during any financial crisis.

FundsA disciplined, long-term strategy makes great sense in this unpredictable environment. The Seven Sins method isn’t the only conservative, diversified strategy out there, but it has the added benefit of protecting investors from their own, worst tendencies—tendencies that tend to come out in fast-changing, up-and-down markets. We may not experience an overheated market like the one that occurred between 1999 and 2000, but it’s likely that we’ll go through a similar “hot” period, and investors who are ruled by their greed, pride, or envy will likely suffer because a highly bullish market brings out these sins.

In fact, I expect that many opportunities will emerge in the coming years, and these opportunities must be approached prudently rather than rashly by investors with long-term objectives. There may be another wave of leveraged buyouts similar to what occurred in the late 1980s or a renewed merger-and-acquisition fervor. People will become rich, and this euphoria will drive normally rational investors to do things they would not normally do; their vulnerability to sin will be high.

There will also be crises and panics. No doubt, more “Enrons” will emerge or a hedge fund will blow up. On a large scale, we are bound to have events that have a dramatic, negative impact on the entire market. Think back over the last twenty years and you’ll recall the 1987 crash, the 1990 bank crisis, the 1991 Gulf War, the 1998 Russian Government Bond default, the Long-Term Capital Management hedge fund failure, and 9/11. I have no idea what the next one will be, but I am certain that people will sell in droves when it hits; their various sins will gain power over them and cause them to sell reflexively and without objective analysis. The Seven Sins method helps impose objective analysis, manage reflexive selling, and take advantage of buying opportunities in down markets.

In calm, steady markets, investors are less vulnerable to the seven sins. They tend not to have as much to get angry about, to be proud of, to be greedy for, and so on. Rapid movement in the markets, however, stirs investors‘ emotions. We’re likely to experience even more market swings in the future than we have had in the past. For this reason alone, people must resist the temptations that arise in periods of crisis or euphoria. Admittedly, resistance can be difficult, especially when market movements cause us to be even more slothful, vain, or wrathful than we normally are.

These are the times when investors make major mistakes and when you should be especially reliant on the seven sins framework. Use the stories in this article as cautionary tales and the advice as a hedge against emotional inflation. In the coming years, you’re bound to find yourself in a situation where you’re so angry at your broker who didn’t warn you about a sector collapse or so eager to get in on all the action an up-market offers (such as gluttony) that you lose your cool, act too quickly, and make a significant error.

I cannot promise that the seven sins approach will prevent every error. It will, however, increase your odds of coming out ahead in the long run, and if you’re like most investors who are concerned about retirement, your children’s college educations, and other major life goals, long-term success is really the only true measure of your investing. Let other people win big and lose big in the short term. While they are still playing their zero-sum game, you’ll be enjoying a secure financial future.

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