Dean Parisian
Active Member
- Messages
- 441
Third quarter 2008 statements are out and you might want to stop worrying, it doesn't do any good. The stocks don't know you own them and wouldn't behave any different if they did. So, first, take a deep breath. Get some perspective. If you don't have any, may I kindly offer up some for free. First, review these facts of the market since I went to work on Wall Street in 1982:
1982: Double-digit unemployment
1983: Record budget deficit
1984: Technology new issues bubble bursts
1985: Dollar too strong
1986: Dow at 1800 - "too high"
1987: Stock market crash
1988: Worst drought in 50 years
1989: Savings & loan scandal
1990: Iraq invades Kuwait
1991: Recession
1992: Record budget deficit
1993: Clinton health care plan
1994: Rising interest rates
1995: Dollar at historic lows
1996: Greenspan "irrational exuberance" speech
1997: Asian markets collapse
1998: Long Term Capital collapses
1999: Y2K problem
2000: Dot-com stocks plunge
2001: Terrorist attacks
2002: Corporate scandals
2003: Gulf War II
2004: High oil prices
2005: Trade deficit - KATRINA hits
2006: Commodity prices spike- T buys BLS
2007: New Fed Chair, inflation, energy, metals, int?l
Now consider the following;
SAVERS PROCESS THE FUTURE THROUGH THE EMOTION OF FEAR.
INVESTORS PROCESS THE FUTURE THROUGH THE EMOTION OF FAITH.
SAVERS THINK THAT PAPER MONEY HAS REAL VALUE, IE. A $100 BILL.
INVESTORS KNOW THAT PAPER MONEY IS ONLY A MEDIUM OF EXCHANGE.
HARD CURRENCY IS NOT A STORE OF VALUE, PURCHASING POWER OF MONEY IS.
SAVERS THINK THAT LONG TERM RISK IS THE LOSS OF PRINCIPLE.
INVESTORS KNOW THAT LONG TERM RISK IS OUTLIVING YOUR MONEY.
REMEMBER, THE CPI OVER THE LAST 30 YEARS HAS TRIPLED, WHO TRIPLES THEIR INCOME? RISK IS THE EXTINCTION OF THEIR PURCHASING POWER. SAFETY IS INCREASING THEIR PURCHASING POWER.
SAVERS DO NOT KNOW THE DIFFERENCE BETWEEN LOSS AND FLUCTUATION.
INVESTORS KNOW THE DIFFERENCE.
IF THE MARKET INDICES FALL 25%, THAT DOES NOT MEAN A LOSS OF 25%.
IF YOU DON?T PANIC, THERE IS NO LOSS. IF YOU DO NOT SELL, YOU HAVE NO LOSS.
THE DOWNS IN THE STOCK HAVE ALWAYS BEEN TEMPORARY. ALWAYS HAVE BEEN. THE UPS IN THE STOCK MARKET HAVE ALWAYS BEEN PERMANENT, ALWAYS HAVE BEEN. THE REAL RISK IN STOCKS IS NOT OWNING THEM. THE LACK OF INTELLIGENCE IS NOT THE SAVERS DOWNFALL. FEAR AND THE LACK OF STOCK OWNERSHIP IS!
Stocks solve long-term problems and should be owned for the long haul. If you are going to puke them up every time America stumbles into a mild recession or correction you deserve your investment fate. Listen up and pay attention here.
At the end of an investor?s life, less than 5% of total lifetime return will come from what the investments did versus other investments. The other 95% will come from how the investor behaved. I have a firm belief that there is no relationship between investment performance and investor performance.
Stock market success is a function of two things: first, recognition that the markets will go down and sometimes go down a lot and two: preparation to regard those declines as either non-events or buying opportunities, and never as an occasion to sell in a panic.
With all certainty, the most boring and mediocre stock fund in your portfolio, the one that you hold onto during a vicious and severe bear market is infinitely better than that world-class stock fund that you sell out of at the bottom of a temporary decline.
Now, if your serious retirement portfolio is making you feel uneasy and you feel it needs professional, unbiased attention, let's talk for a moment on what you might do.
The first thing you should do would be to shut off CNBC. I hope someday CNBC will be required by law to flash on the TV screen a graphic that says ?Nothing that happens in the market in the next 30 days will matter in 10 or 15 years?.
You also might want to stop reading the financial press. Yes, I read three papers every morning before the average guy gets out of bed, but journalism always gets it wrong. It has a relentless bias to the negative. I call it financial pornography. Reporters never report my reasons the stock market is headed up in our lifetime and it isn't the job of journalists to make people great investors. It's their job to make people come back for more journalism.
The simple lesson to remember is that markets are not logical or reasonable; they are emotional and unstable. Markets are crowds of people. As we know from attending sporting events or concerts, the normal rules of behavior do not apply when we are in large groups. If we try to predict what a crowd will do based on logical behavior of a single person in isolation we will most likely be mislead.
And so it goes with the stock market. Today the black boxes at a handful of firms scan the exchange order books every millisecond and automatically execute algorithmic trades, ripping any conceivable advantage away from the public. They are the casino, with structurally embedded multi-billion annual profits ? leaving everyone else on the other side of the zero-sum game. We think that sitting and doing cold and hard calculations on valuation levels and the reasonableness of gains is as futile as predicting what a teenager might do at a rock concert. The market is not an exercise in calculus. It is primarily an experiment in crowd psychology.
Today, stocks are on sale, we are in a recession and stocks are down to attractive buying levels.
Stay the course, stay smart and keep contributing to your 401-k.
And don't forget that I've never met a successful pessimist.
http://chippewapartners.blogspot.com
1982: Double-digit unemployment
1983: Record budget deficit
1984: Technology new issues bubble bursts
1985: Dollar too strong
1986: Dow at 1800 - "too high"
1987: Stock market crash
1988: Worst drought in 50 years
1989: Savings & loan scandal
1990: Iraq invades Kuwait
1991: Recession
1992: Record budget deficit
1993: Clinton health care plan
1994: Rising interest rates
1995: Dollar at historic lows
1996: Greenspan "irrational exuberance" speech
1997: Asian markets collapse
1998: Long Term Capital collapses
1999: Y2K problem
2000: Dot-com stocks plunge
2001: Terrorist attacks
2002: Corporate scandals
2003: Gulf War II
2004: High oil prices
2005: Trade deficit - KATRINA hits
2006: Commodity prices spike- T buys BLS
2007: New Fed Chair, inflation, energy, metals, int?l
Now consider the following;
SAVERS PROCESS THE FUTURE THROUGH THE EMOTION OF FEAR.
INVESTORS PROCESS THE FUTURE THROUGH THE EMOTION OF FAITH.
SAVERS THINK THAT PAPER MONEY HAS REAL VALUE, IE. A $100 BILL.
INVESTORS KNOW THAT PAPER MONEY IS ONLY A MEDIUM OF EXCHANGE.
HARD CURRENCY IS NOT A STORE OF VALUE, PURCHASING POWER OF MONEY IS.
SAVERS THINK THAT LONG TERM RISK IS THE LOSS OF PRINCIPLE.
INVESTORS KNOW THAT LONG TERM RISK IS OUTLIVING YOUR MONEY.
REMEMBER, THE CPI OVER THE LAST 30 YEARS HAS TRIPLED, WHO TRIPLES THEIR INCOME? RISK IS THE EXTINCTION OF THEIR PURCHASING POWER. SAFETY IS INCREASING THEIR PURCHASING POWER.
SAVERS DO NOT KNOW THE DIFFERENCE BETWEEN LOSS AND FLUCTUATION.
INVESTORS KNOW THE DIFFERENCE.
IF THE MARKET INDICES FALL 25%, THAT DOES NOT MEAN A LOSS OF 25%.
IF YOU DON?T PANIC, THERE IS NO LOSS. IF YOU DO NOT SELL, YOU HAVE NO LOSS.
THE DOWNS IN THE STOCK HAVE ALWAYS BEEN TEMPORARY. ALWAYS HAVE BEEN. THE UPS IN THE STOCK MARKET HAVE ALWAYS BEEN PERMANENT, ALWAYS HAVE BEEN. THE REAL RISK IN STOCKS IS NOT OWNING THEM. THE LACK OF INTELLIGENCE IS NOT THE SAVERS DOWNFALL. FEAR AND THE LACK OF STOCK OWNERSHIP IS!
Stocks solve long-term problems and should be owned for the long haul. If you are going to puke them up every time America stumbles into a mild recession or correction you deserve your investment fate. Listen up and pay attention here.
At the end of an investor?s life, less than 5% of total lifetime return will come from what the investments did versus other investments. The other 95% will come from how the investor behaved. I have a firm belief that there is no relationship between investment performance and investor performance.
Stock market success is a function of two things: first, recognition that the markets will go down and sometimes go down a lot and two: preparation to regard those declines as either non-events or buying opportunities, and never as an occasion to sell in a panic.
With all certainty, the most boring and mediocre stock fund in your portfolio, the one that you hold onto during a vicious and severe bear market is infinitely better than that world-class stock fund that you sell out of at the bottom of a temporary decline.
Now, if your serious retirement portfolio is making you feel uneasy and you feel it needs professional, unbiased attention, let's talk for a moment on what you might do.
The first thing you should do would be to shut off CNBC. I hope someday CNBC will be required by law to flash on the TV screen a graphic that says ?Nothing that happens in the market in the next 30 days will matter in 10 or 15 years?.
You also might want to stop reading the financial press. Yes, I read three papers every morning before the average guy gets out of bed, but journalism always gets it wrong. It has a relentless bias to the negative. I call it financial pornography. Reporters never report my reasons the stock market is headed up in our lifetime and it isn't the job of journalists to make people great investors. It's their job to make people come back for more journalism.
The simple lesson to remember is that markets are not logical or reasonable; they are emotional and unstable. Markets are crowds of people. As we know from attending sporting events or concerts, the normal rules of behavior do not apply when we are in large groups. If we try to predict what a crowd will do based on logical behavior of a single person in isolation we will most likely be mislead.
And so it goes with the stock market. Today the black boxes at a handful of firms scan the exchange order books every millisecond and automatically execute algorithmic trades, ripping any conceivable advantage away from the public. They are the casino, with structurally embedded multi-billion annual profits ? leaving everyone else on the other side of the zero-sum game. We think that sitting and doing cold and hard calculations on valuation levels and the reasonableness of gains is as futile as predicting what a teenager might do at a rock concert. The market is not an exercise in calculus. It is primarily an experiment in crowd psychology.
Today, stocks are on sale, we are in a recession and stocks are down to attractive buying levels.
Stay the course, stay smart and keep contributing to your 401-k.
And don't forget that I've never met a successful pessimist.
http://chippewapartners.blogspot.com
