HAPPY BIRTHDAY GREENTHOUGHT$!
What We've Seen in Our First Year
Part 2 of 3
It is now 12 months since we started this little educational project known as the GreenThought$ newsletter. Today we continue our review of the first year of this publication. We'll conclude with part three within the next week.
From "Patience, Skill and the New York Yankees" - 9/28/07
So what is long term investing in the stock market? I say it starts when you readily agree to the following statements:
1. I don't need to use the money for at least 5 years.
2. I understand that the only thing that matters is that when it is time to use the money, it has grown to an amount I am comfortable with.
3. I realize that in any one year, a money manager can falter because of things beyond their control (e.g. Value managers in 1999, when fast-moving tech stocks ruled the market).
4. I make changes to my portfolio based on what I expect to occur in the next several years, not weeks or months.
5. If I take an aggressive approach (like having 75% of my portfolio in tech stocks), I am prepared to ride out several large, temporary declines on the way to achieving my objectives.
6. I look at my portfolio's value no more than once a month (or if I look more frequently, I don't get emotional about it - its just a quick update as part of my daily or weekly routine).
From "The Worst Stag Party Ever" - 12/20/07
The Fed has now been forced to drop rates at least twice in response to the credit crisis that started this summer, and which continues to exist. In other words, their hand was forced into feeding the Stagflation monster - they did not want to lower rates, but the short-term alternative was gruesome. The threat of Stagflation, dormant for over 30 years, is now a credible threat again. That changes many of the rules of investing that have lulled many professional and amateur investors into complacency for decades.
From "Counting Backwards" - 2/1/08
Many investors think that a bear market is falling stock prices. That is part of the definition. To really get an appreciation for what a "secular" bear market is, you have to experience a prolonged period in which stocks are not always falling, but as the old commercial says, they've "fallen and they can't get up" to where they formerly peaked. Its ugly if you are an index investor, but it creates some very real opportunities.
For baby boomers approaching retirement, seniors on a fixed income, or younger folks who are trying hard to wisely plan ahead, it's quite a frightening picture. If the market continues to drop, we'll keep tracking how far back in history we have to go to in which the market is flat.
From "Real Returns Get a Reality Check - 2/8/08
There has rarely been a worse time to "reach for yield" by buying higher-yielding securities in exchange for a lot more risk. The only exception to this would be if you are viewing those higher-yield securities not as "safe money" but as part of a contrarian move with a growth objective. In other words, high-yield bonds and the like should be viewed as alternatives to stocks, not to bonds. Otherwise, you risk huge disappointment.
From "Capturing Investment Success" - 2/15/08
During the bubble's encore from 2003-2007, the market rose over two-thirds of the time, that feeling of complacency came back. We have often heard it said by people in our industry that "the stock market goes up 70% of the time" and this is the justification for the buy-and-hold strategies that pervade the industry. Our look at the last 57 years shows us that the 70% figure is an exception, not the rule. Different market environments have very different impacts on the same portfolio.
Bottom line: there will be good markets and bad markets. Since predicting the future is not anyone's best talent (especially economists and weather people), knowing how much of the ups and downs will be "captured" by your portfolio leaves you much better prepared to navigate the markets as a long-term investor.
(c) Emerald Asset Advisors
www.emerald-eas.com
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