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October 16, 2008
A Watched Market Doesn't Rise
We humans have a strong fascination with the macabre. That's why we experience traffic jams as people slow down and rubber-neck to observe the details of a car crash or the identity of a speeding ticket recipient. The same thing is happening today with the stock market. People who wouldn’t recognize a credit default swap if it hit them in the head are nonetheless glued to CNBC, mesmerized by every uptick and downtick of the stock market.
As your friend, adviser, or anonymous blogger, I urge you to not fall into this trap. Obsessive market fixation is bad for your health, a waste of time, and totally unnecessary. Unless your invested capital is needed in the next year or so – in which case you shouldn't be investing in stocks – all you've experienced is a paper loss. Admittedly, it's a paper loss of painful proportions – but if you're investing for the long term, you don’t need to flinch with the market's over-reaction to every bit of positive or negative news. It's all very confusing. When oil prices go up, it's bad news. When oil prices go down, it's bad news. When Congress doesn't pass the bailout package, it's bad news; and when they do pass it, that's also bad news.
Today's market is a puzzle wrapped in an enigma with a large conundrum thrown into the mix. It's a puzzle that will be solved over time, and no amount of consternation on your part will make it happen any sooner.
As your friend, adviser, or anonymous blogger, I urge you to not fall into this trap. Obsessive market fixation is bad for your health, a waste of time, and totally unnecessary. Unless your invested capital is needed in the next year or so – in which case you shouldn't be investing in stocks – all you've experienced is a paper loss. Admittedly, it's a paper loss of painful proportions – but if you're investing for the long term, you don’t need to flinch with the market's over-reaction to every bit of positive or negative news. It's all very confusing. When oil prices go up, it's bad news. When oil prices go down, it's bad news. When Congress doesn't pass the bailout package, it's bad news; and when they do pass it, that's also bad news.
Today's market is a puzzle wrapped in an enigma with a large conundrum thrown into the mix. It's a puzzle that will be solved over time, and no amount of consternation on your part will make it happen any sooner.
October 1, 2008
The Sky Is Falling, Buy Sky.
The third quarter was a disaster by any measure. The S&P 500 (-11%), the NYSE Composite (-13%), and international stocks (-22%) were all down significantly. Commodities had their worst quarter since the 1970s; and bonds returned less than 1.0%. Household names like Bear Stearns and Lehman Brothers are gone. Global behemoths like AIG and Merrill Lynch were brought to their knees before being stabilized with outside capital.
There's a natural tendency to want to dump everything and move to cash or gold. But our natural tendencies when it comes to money matters are often wrong. We buy high and sell low. At I-Pension, we don't try to time the market. We have strategic models and, while we will tweak them, we don't stray to far from the fundamentals. Nonetheless, we do like to see what the "smart money" is doing; and the smartest money around is managed by Warren Buffett, head of Berkshire Hathaway. Last week, Buffett invested $5 billion in Goldman Sachs and today he invested $3 billion in General Electric. He is also on record that he would be interested in buying a substantial chunk of the subprime mortgages that started this whole mess.
Is Warren Buffett always right? No. But he understands that fortunes are made during times like these. You want to buy when everyone else is selling. But like Buffett, you need to pick your spots; and you need to keep your money working as hard as you do to earn it.
There's a natural tendency to want to dump everything and move to cash or gold. But our natural tendencies when it comes to money matters are often wrong. We buy high and sell low. At I-Pension, we don't try to time the market. We have strategic models and, while we will tweak them, we don't stray to far from the fundamentals. Nonetheless, we do like to see what the "smart money" is doing; and the smartest money around is managed by Warren Buffett, head of Berkshire Hathaway. Last week, Buffett invested $5 billion in Goldman Sachs and today he invested $3 billion in General Electric. He is also on record that he would be interested in buying a substantial chunk of the subprime mortgages that started this whole mess.
Is Warren Buffett always right? No. But he understands that fortunes are made during times like these. You want to buy when everyone else is selling. But like Buffett, you need to pick your spots; and you need to keep your money working as hard as you do to earn it.
