In This Chapter
Distinguishing between microeconomics and macroeconomics
Boning up on key economic concepts
Exploring the major schools of economic thought
Keeping an eye on a couple of current economic issues
"Stock prices have reached what looks like a permanently high plateau," said the celebrated economist Irving Fisher on October 17, 1929, shortly before history's most famous single-day stock market plunge. Nobody should have listened to Irving Fisher — not even Irving Fisher. He lost a ton of money in the stock market and filed for bankruptcy at the start of the Great Depression. Sooooo . . . if you don't think understanding economics is important to your stock investing strategy, then by gum you'd be as wrong as Irving.
This chapter isn't full of economic gobbledygook; I won't beat you over the head with phrases like "inelastic demand aggregates" and "marginal statistical utility" (whatever that means). (You're breathing a sigh of relief, aren't you?) Presented properly, economics really is quite interesting. Understanding economics helps you make better decisions involving your investment choices. All of my successful stock picks were first grounded in common sense economics. Economics also helped me avoid bad choices; Internet stocks in the late 1990s and mortgage and financial stocks during 2006–2008 didn't make economic sense, and ultimately shareholders lost most (or all) of their money as stock prices sank into oblivion. Always ask ...