Over the weekend I was talking with a friend and an investor, not my client. He was telling me that he is invested in gold and silver. His reasoning is that the Fed is pumping too much money into the financial system and eventually the financial system will collapse. I believe he has been listening to the financial media, ie, financial pornography. These ‘news’ portals continue to use fear to sell their hot commodity/product. They will explain why the collapse is imminent and what to do about it. Which entails buying their ‘stuff’’.
It seems as though every week I discuss the Wall Street bullies. We have been trained from our youth to believe that someone knows what will happen and when. If the bully talking has impressive credentials, like an Ivy League degree, or Stanford or any prestigious university we give them additional attention and credibility. What these bullies don’t tell you is how they know what to do. How do they determine what will happen next? Many of the scenarios are developed using a method called ‘data mining’. This entails determining what they want to happen or appear to happen and then finding a period of time in history that proves their ‘prediction’.
What these bullies don’t tell or perhaps they don’t know is that in order for an event to repeat. All the thousands of variables/unknowns have to perfectly align. This is virtually impossible but it is possible. These bullies know that investors make their decisions based on emotions and not logic or cognitive reasoning. The bullies continue to sell fear, right now, and hype when a hot asset class is making a huge move.
The proper method to do research is to look at all the data available and base your portfolio based on this research. In our case this involves data going back to 1926 for the U.S. equity markets. This data reveals market premiums in the equity markets that will reward investors over the long term.
Remember you need to avoid the three signs of gambling and speculating with your investment money. Avoid these signs and you will improve your results with less anxiety. They are
- Stock Picking.
- Market Timing (getting into and out of the market and then back in at the right time)
- Track Record Investing (basing investment choices on a recent track record)
Unless, of course, you enjoy watching the financial news and reading all the financial articles/predictions. Looking at GNP, money supply, unemployment, trade deficit and list goes on and on. This can prove difficult because there are endless supplies of different predictions. The information you will receive will have countless contradictions.
In my opinion there is a much better approach. One that involves basing your prudent portfolio on academic, Nobel Prize winning research. With the guidance of an investor coach/fiduciary you can develop your portfolio/plan and learn to develop the discipline to maintain your strategy. This is equally important for both strong up markets and the inevitable down markets.
Einstein’s definition of insanity is ‘doing the same thing over and over again and expecting a different result’. Stop following the lead of the Wall Street bullies and learn how to empower your own financial future.
The equity markets remain one of the greatest wealth creation tools on the planet, if properly used.
The free markets work use that information daily.
