Wednesday, October 21, 2009

Braving The Storm: Screw Financial Experts, Stay The Course

I was perusing through Yahoo Finance while eating my lunch today and wasn’t really paying that much attention to what I was looking at. As I was skimming the headlines I almost started laughing at what I saw. Here are some headlines that I found all on the same site! Disclaimer: This post is not to bash Yahoo Finance. I like Yahoo Finance. It is merely to prove a point.

Stocks Rise as Profits at Banks Provide Boost- AP

23 states report higher unemployment in September- AP

Oil falls to around $78 as inventories weigh- Reuters

The Days Of 'Buy and Hold' Are Over, says John Mauldin- Tech

John Mauldin: Tax Hikes Will Kill the 'Recovery’, Which Isn’t Real Anyway- Tech Ticker

Housing Prices: Expected to Drop More in the Next Year?

Stimulus Push Is On, Even If It Isn't Called That

Recovery in Luxury Goods Still Out of Reach

Holiday Shopping Season Gets Early Start

Foreclosure Epidemic Reaching More Expensive Homes

Is the economy recovering? Recovered? Slumping? A Farce? Are we on the brink of another crash? With headlines like the ones above who knows what to believe? With an onslaught of daily information more prevalent now than in any time in history it is important to filter through the minutia to take what information you need while trashing the rest. Do I read articles like the ones above? Yes. But I do so more to stay familiar with the general positions of the articles than I do to develop an investing strategy. If you cannot brave the storm of financial and investing information that is thrown your way it is easy, as illustrated by the headlines above, to run in 50 different directions at once without accomplishing the life goals that are the reason you are investing in the first place. Here are a few things that I try to remind myself when I am doubting my strategy, feeling restless, feeling impatient, etc.:

1. Remember your life goals – You should already be enjoying your life. You should also want to make it better. You should be investing to make your ideal vision of life a reality and to secure your financial future. If your vision of a great life is based on values and those values are aligned more on the family, friends, experiences side of the house as opposed to the Lamborghini, having six pools, and a castle side then you don’t need to drastically earn massive amounts of wealth tomorrow. Live your life today and make gradual improvements over time with your financial decisions furthering those goals.

2. Think long term – Massive amounts of wealth are rarely made over night. Those that are made overnight are even more rarely made in the market. Chances are that person is not going to be you. A long term consistent approach to building wealth is never dead (as claimed above) because as investment vehicles, strategies, and laws change, a long term investment horizon can absorb the unforeseen consequences of the changes and will likely beat many of the speculators on the way back up. Time and asset allocation are the biggest determinations of success that you have. Run any compounding interest model and be amazed at the power of time! Besides all that, long term investing is a hell of a lot more relaxing.

3. You only suffer losses when you sell – When you operate on a long term investing horizon it’s much more difficult to pull the trigger at the wrong time. If you don’t like your unrealized gains just wait longer. When you operate your investment scope on days your time frame to make a wise decision (or to guess wisely) is measured in minutes or seconds. When you operate in terms of decades your time frame to make wise decisions is measured in days, months or even years. By stretching the scope of your vision you have effectively error proofed your decision making ability. And if you do make a decision that looks bad in hindsight you likely are only cutting into unrealized gains and not original principle.

4. Building wealth isn’t always sexy – An average person can accumulate large amounts of money over time simply by investing in a total market index fund or a life cycle fund. Will you outperform the market? No. Will you be able to talk hot stock tips with your neighbor? No. Will your life resemble a scene out of Boiler Room? No. Should you give a shit? NO! Who cares. Investing is the one ‘sport’ where being average, as in mirroring the market, will put you ahead of a great deal of investors whose potential gains are getting chipped away through fees, emotional decisions, and the next big fool proof investing strategy that doesn’t work. Don’t compete against others, compete against the goals you have set for your life.

1 comment:

john said...

Hey Matt the approach you follow is very good.

Its awesome steps. Thank you Matt. Hope to hear an another post soon.