Wednesday, October 28, 2009

Investing And Entertainment Do Not Mix

Investing done right is quite boring for the average consumer. With the human emotions of greed and fear driving much of investor behavior, it should come as no surprise that investors fall victim to Ponzi schemes that they know, in their hearts, sound too good to be true, but go for it anyway. These range from Hedge Funds to Variable Annuities to TV “Pitchmen.”
Of course, that is not how it looks on TV: Jim Cramer yelling and Maria Bartiromo on the floor of the exchange for the closing bell. Why that's exciting stuff! Suze Orman as well.
CNBC + Investing = Action Sport.
Danger Will Robinson, Danger!
At the top of the tech bubble, investing became America's favorite spectator sport. Everywhere you went, CNBC was playing. I still think that there's something odd about sitting in your dentist's office watching CNBC, but back then you couldn't escape it.
It seemed to die down a bit as volatility dropped from 2004 to mid 2007.
Then it was back. Round-the-clock coverage of the "Financial Crisis" and insightful commentary from Jim Cramer. I have never been surprised that people watch Cramer. His show can be entertaining, but I can't believe that people act on what he says. It's like taking knife handling advice from a circus clown.
Investing lesson:
Take the time you used to spend watching “financial entertainment” and do something worthwhile or simply fun. Never, I mean never, ever, confuse “financial entertainment” for professional advice.

Saturday, October 24, 2009

Bear Markets Do Wonders for Retirement (If You Are Young!)

“The six-month bear market that wiped out nearly half of Americans' retirement savings threatens to scare away the class of investor who has the most to gain from it: young people”.
“Mutual fund manager T. Rowe Price says in a study that those who began to systematically invest in equities in severe bear markets were "significantly better off 30 years later than investors who began in bull markets".
Click to read the full article from: (TheStreet).
Investing lesson:
The article cited above is very consistent with my “contrarian philosophy." In other words, to succeed as an investor, you need to usually do the opposite of “conventional thinking."

Sunday, October 04, 2009

Words of Wisdom From James Stewart and WADEX Portfolio Moves

Most financial journalists are very poor at providing readers with advice that is "wise." One of the few good ones out there is James Stewart, who writes for the Wall Street Journal and Smart Money Magazine. Provided below are some pearls of wisdom from Mr. Stewart's 9/29/09 column.
"So the lesson of this rally seems to be that the strong are likely to get stronger, which is very much the hallmark of a momentum-driven rally. If you think this rally will continue, and want to buy now, this evidence suggests you should look for stocks that have already done well and appear to be overvalued. While it flies in the face of value-driven logic, these stocks could very well be the best performers in the last gasp of a rally."
To me, this is the logic of the hard-core trader and momentum investor. It not only depends on the rally continuing, but assumes investors will know when it’s over, and it’s time to get out. So far as I know, no one has perfected a system that can provide such perfect timing.
As I’ve said before, no rally goes on forever. The tide will turn, and when it does, I suspect the overvalued stocks will be the hardest to fall. That’s why I’ll continue to prune my exposure to the highest-flying stocks when and if we hit another selling threshold. Cash may seem dull today, but remember what it felt like just a year ago?