Not A Time To Panic…..

The recent downturn has brought a renewed sense of pessimism to our country and the world. With the lack of leadership from Washington as well as corporate America.  Many would say we need some adult leadership.


I do know this is not a time for panic.

Federal Reserve Bank of NY, 33 Liberty Street
Federal Reserve Bank of NY, 33 Liberty Street (Photo credit: Wikipedia)


There have been some who told me that ‘buy and hold’ is dead. My response is that ‘buy and hold’ should never have existed.  Rather we must ‘buy and rebalance’. By rebalancing we are in effect buying low and selling high. Automatically, because it’s part of the process.


As long term investors we must ignore the media and remain diligent to our process and strategy.  We must ignore short term volatility and focus on our long term goals.


In the coming weeks we will hear from the ‘gurus’ that ‘I told you so’…’you should have sold equities and bought gold (or whatever)’. They will say it’s not too late because the market will continue down. Each ‘expert’ will offer a solution to what is going on ‘right now’.  Invariably they will all say ‘this time is different’.


There will always be predictions that come true, unfortunately we do not know which predictors are right going forward. If you have enough predictors someone is bound to be right. This ‘correct’ forecast is a matter of luck and not skill. And unfortunately the success is seldom repeated.


Successful investing involves finding a prudent process. A process backed by academic and scientific evidence. Because we are emotional beings during market extremes both down and up. We need the help of a coach to keep us disciplined to our process. (OK that could be called self-serving).


Keep in mind the financial media will continue to fuel our fear as well as feed the hype. The result is continual trading. Which in turn allows Wall Street to continue to collect high fees.


They will continue to entice us to market time, stock pick or hire the money manager with a high return over the short term.  Because these activities facilitate excessive trading.


Instead of focusing on the daily stock market quotes. We need to focus on what made our country great. Our country is going through some tough times right now however I continue to believe in America and I always will.


The jobs report just came out and we added less jobs than expected. This confuses me because regardless of where I go there are help wanted signs. Some even appear to be permanent signs.


We must stop pointing fingers and get back to work. The free markets will work if we let them.


Continue on with our long term goals own equities…globally diversify…rebalance.

A Gross Miscalculation

Historical inflation, using data from http://o...
Image via Wikipedia
This is just an example of why trying to beat the market will cost you. Your retirement plan is far too important to be managed by forecasters. Even the most mighty will fall.

The financial media was all atwitter. Headlines screamed “Gross dumps Treasuries.” Many investors followed his advice and performed his suggested exorcism.Fast forward to August, 2011. Gross now admits dumping bonds was a “wrong call.” The U.S. economy grew more slowly than he anticipated, lowering the yield on Treasury bonds and causing the Total Return Fund to miss out on the rising market value of older fixed-rate Treasuries. Gross admitted his mistake, telling the Financial Times, “Do I wish I had more Treasuries? Yeah, that’s pretty obvious.”

Investors in the Pimco Total Return Fund have been impacted by this “mistake.” The Total Return Fund recently ranked 501 out of 589 bond funds in its category. It has underperformed its benchmark index by 1.26 percent year to date. Gross had this response to the inability of his fund to beat a simple index: “When you’re underperforming the index, you go home at night and cry in your beer… “It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.”

Investors may not be so sanguine. It was a Gross miscalculation, illustrating the vagaries of active management. Even the best and the brightest (Gross has a stellar track record) can get it wrong. If you are relying on brokers and active managers to “beat the markets” and “add alpha,” you are gambling and not investing.

Do you truly believe there is someone out there that can predict the future? Even the most famous bond investor Bill Gross gets it wrong costing his clients dearly. The best approach for most if not all investors is to own a globally diversified portfolio with low cost funds.

Please comment or call to discuss how this can affect you and your future.

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US Bond Prices and Bill Gross: Pimco’s Gross Regrets ‘Mistake’ on US Debt Call

ARLINGTON, VA - JANUARY 13:  Federal Reserve C...
Image by Getty Images via @daylife
If an investment strategy relies on an accurate forecast of the future it will eventually fail. Eventually even the most famous traders will get it wrong. Your retirement plan is far too important to risk it on forecasters.

Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt.

Mr. Gross emptied his $244 billion Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category.

“Do I wish I had more Treasurys? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding: “I get that it was my/our mistake in thinking that the US economy can chug along at 2 percent real growth rates. It doesn’t look like it can.”

When the yield on the 10-year Treasury [US10YT=XX  2.184    -0.06  (0%)   ] was 3.5 percent in January, Mr Gross warned that the risk of rising inflation made government debt a poor investment.

Bond prices move in the opposite direction to bond yields, which he forecast would rise as Ben Bernanke, chairman of the Federal Reserve [cnbc explains] , brought the second program of bond buying, known as quantitative easing [cnbc explains] , to an end in June.

Investors saving for retirement should not rely on active managers to predict where the market is going. No matter how long the track record, even the best will fall in the long run.

Please comment or call to discuss.

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