The Wall Street bullies are relentless is their pursuit of convincing investors that they can predict the future and help you ‘beat’ the market. After each failed attempt investors continue to seek out the next ‘hot’ stock or asset class or strategy. They continue to seek the ‘answer’ to their investment problems. They continue to seek out the formula to earn stock market returns with Treasury bill risk.
What they end up with is Treasury bill return, if they are lucky, with stock market risk.
Right now investors are seeking an increase in rate of return. Since the interest rates continue to remain low investors must look elsewhere. And the Wall Street bullies again have an answer. Buy high dividend paying (value) stocks and receive the dividend AND an increase in share prices. Seems like the perfect answer to all investors’ problems.
Remember GM paid a dividend until the day they went bankrupt.
This is another example of buying the ‘hot’ asset class. Remember in the mid to late 90’s when large cap growth stocks were surging year after year, especially if the stock had a .com attached? Everyone wanted to own all large cap growth with mostly .com stocks.
Then the inevitable, the tech bubble devastated this asset class.
A great comparison is that of Warren Buffet who is really a value stock investor. In 1999 when the large cap growth .com stocks were earning double digit returns some as high as 100% Warren Buffet suffered a 15% loss. Some said he was washed up but when the tech bubble burst Mr. Buffet and his ‘value’ stocks flourished. It turns out Mr. Buffet was far from washed up.
Many may ask why not just own Warren Buffet’s Berkshire Hathaway fund? That would be great except for the fact that this fund is more volatile than the Standard & Poors 500 itself.
Most investors are unwilling to experience this kind of volatility.
What is the ‘answer’ then? Unfortunately there is no answer to earning a high return with low risk. Our best alternative, in my opinion, is to:
- Own equities and fixed income
- Globally DIVERSIFY
- Rebalance
Earning market returns is actually a superior return.
Since no one can tell you when to buy and when to sell there is no need for:
- Stock picking
- Market timing (getting in and out of the market at the right time)
- Track record investing
We all get frustrated when markets go down. No one enjoys watching their investments decline. Our emotions may get the better of us when we hear the financial media predict the end of the capital markets. Many of us panic and sell during these downturns. Downturns are a component of risk.
Without risk there will be no return.
To succeed in investing seek the help of an investor coach. You do not have to know everything about investing but you do need to know the right things.
Your investor coach will be your guide.
Your investor coach will provide the process and the discipline to guide you on your long term successful financial journey.
Your coach will protect the future you from the current you.
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