Good Investment Advise?

Many in the financial community would say stay the course. But that brings into serious question whether or not that may lead to an “Iraqi War Portfolio”. If it does, the average Joe- down-the-street is going to have more to talk about than just the Government’s balance sheet.

I like asking the opinions of those who are expected to be asked the same questions by those who don’t know any better. Yesterday, I spoke to an investment analyst. She said as follows

Last week’s market performance is only significant for a short term trader. For those invested in long term strategy, market corrections are normal. An aggressive investor typically enjoys a higher rate of return because they can emotionally endure the fluctuations of the market.

I respect the woman so I wouldn’t go ahead and vehemently disagree in person. But the ideas are what warrant critical questioning.

Last week’s market performance is only significant for a short term trader.”

Ok, how short term? How are you sure how long it will take before your investments break even. What I see is need for caution, not complacency. Many who invested at market tops have needed years and sometime decades to cover their losses. Investors in 1929 waited 24 years until they saw black!

“For those invested in long term strategy, market corrections are normal.”

This type of thinking may also be a direct derivative of the 19 year bull market we completed just 7 years ago. After the Crash of 87, we bounced back. After the slump of 1991, stocks came back strong. And every time the market fell during the Tech Boom it was usually making new highs again within days. We had a sell off in May last year and then again in February, both of which were greeted with all-time highs soon enough. But do investors really know what it means when value investors lost 60% of their fortunes in the 70s (not including inflation)?

An aggressive investor typically enjoys a higher rate of return because they can emotionally endure the fluctuations of the market.”

This is only if they hold a significant cash position and invest it as the market declines. However, in order to raise cash one must be prepared. If so when would you sell?

The theory that successful investors never sell their holdings is BS. Warren Buffett sold much of his portfolio in 1969 and later admitted that he should have sold it again in 1999.

Ben Graham warned in 1965 “When challenged to accept either the path of risk or that of safety, always choose safety.” Many of these financial advisers weren’t even around the last time the Dow sold for a price-to-earnings ratio of 8.

But what do I care. On the contrary, if everyone was worried I would have to start getting bullish and I’m not ready to do that yet and the market seems to agree with me.

Caveat Emptor we say. “Let the Buyer Beware”

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