Taking Care Of Business

I went to the dentist yesterday, fortunately I had an easier time than Thomas Levy. Taking care of yourself means going to the doctor and dentist every once in a while and getting some regular exercise. Do these things and you improve your odds for success. The right approach to your portfolio also improves your odds for success. Based on emails, comments and talking with people I get the impression that a lot of folks make investing more complicated than it needs to be. Everyone knows they should be diversified but how many people are diversified? Plenty of people have been burned making a big bet on something speculative yet they keep making big bets. A lot of people worry about a 5% decline even though history is on their side. Beating the market becomes an obsession when saving properly is far more important than year to year results. People who save properly just need to stay relatively close the market, even if they never beat it. The realization that it can be simple is an important building block. A moderate mix of best of breed companies, foreign countries and a couple of narrow themes, combined with proper saving, will do the trick for a lot of people. There will be market cycles, proper asset allocation in relation to when you need to start drawing income is always important and if you are so inclined and want to take steps to smooth out your ride, ok, but keeping it simple works and big bets will bite back more often than not. Everyone knows these sorts of things but very...

Taking Care Of Business

I went to the dentist yesterday, fortunately I had an easier time than Thomas Levy. Taking care of yourself means going to the doctor and dentist every once in a while and getting some regular exercise. Do these things and you improve your odds for success. The right approach to your portfolio also improves your odds for success. Based on emails, comments and talking with people I get the impression that a lot of folks make investing more complicated than it needs to be. Everyone knows they should be diversified but how many people are diversified? Plenty of people have been burned making a big bet on something speculative yet they keep making big bets. A lot of people worry about a 5% decline even though history is on their side. Beating the market becomes an obsession when saving properly is far more important than year to year results. People who save properly just need to stay relatively close the market, even if they never beat it. The realization that it can be simple is an important building block. A moderate mix of best of breed companies, foreign countries and a couple of narrow themes, combined with proper saving, will do the trick for a lot of people. There will be market cycles, proper asset allocation in relation to when you need to start drawing income is always important and if you are so inclined and want to take steps to smooth out your ride, ok, but keeping it simple works and big bets will bite back more often than not. Everyone knows these sorts of things but very...

“Chiggity Check Yourself”

Sage advice from Pepper Brooks, color dodgeball commentator for ESPN8, The Ocho (second reference this week). I wrote up an article for RealMoney that drew a lot of what I would characterize as emotional responses. We have had a couple of clients have emotional responses to the current market volatility and some emotional comments on the blog. A big picture way of thinking of this is that we have had a bad month. There might be more bad months to deal with or not but that is what we have had. I went to page 155 of the 2007 Stock Trader’s Almanac, the one with month by month changes in the S&P 500 going back to 1950, and I counted 53 bad months with a bad month defined as a 5% drop or more. So almost one a year. The one a year is less common than the 2-3 per year every few years and there were a couple of instances where there were more than three in a year. So 53 times in 56 1/2 years (it only goes half way through 2006) means, to me, that this is very very normal. Emotional responses to very very normal will likely result in a bad decision. This is what behavioral finance is all about, emotional responses to financial events where emotion is the last thing you need. There have been white papers and the like on this subject. How many of the 53 bad months have you endured in your investing career so far? How many more do you think you will endure in the future. Now replace bear...

"Chiggity Check Yourself"

Sage advice from Pepper Brooks, color dodgeball commentator for ESPN8, The Ocho (second reference this week). I wrote up an article for RealMoney that drew a lot of what I would characterize as emotional responses. We have had a couple of clients have emotional responses to the current market volatility and some emotional comments on the blog. A big picture way of thinking of this is that we have had a bad month. There might be more bad months to deal with or not but that is what we have had. I went to page 155 of the 2007 Stock Trader’s Almanac, the one with month by month changes in the S&P 500 going back to 1950, and I counted 53 bad months with a bad month defined as a 5% drop or more. So almost one a year. The one a year is less common than the 2-3 per year every few years and there were a couple of instances where there were more than three in a year. So 53 times in 56 1/2 years (it only goes half way through 2006) means, to me, that this is very very normal. Emotional responses to very very normal will likely result in a bad decision. This is what behavioral finance is all about, emotional responses to financial events where emotion is the last thing you need. There have been white papers and the like on this subject. How many of the 53 bad months have you endured in your investing career so far? How many more do you think you will endure in the future. Now replace bear...

Familiar Chart Pattern

Long time readers might recognize this chart I use in my technical study as this is what stocks did on Tuesday. I had a post on RealMoney yesterday in which I said that the panic is over but that the event is not. The market then got whacked. I tend to think that the panic is in fact over and what is happening now is the discounting of how serious this will or will not be. I mentioned over the weekend that no more selling made no sense to me. That such a big threat could resolve itself in a couple of weeks just seemed wrong, still does. Based on a couple of the comments yesterday the panic may NOT be over. This is subjective of course but I think the panic of early August was the discovery of the problem. Now that it has been discovered it needs to resolve over time. Generally speaking I have thought the worst case scenario from this would be a normal bear market and while I have been less vocal about a normal recession this wouldn’t be shocking either. Regarding the Bespoke table from yesterday a reader asked “How do you time your over weighting or under weighting of a sector? Why do you think it is reasonable to time sectors, but not time the market?” It depends how you use the word time. As a means of short term trading I don’t think it is ideal for managing other people’s money (this is my perception only and I am not saying what other people should do) and I am not that...