Like me, you’ve probably become numb to the news --- oil at record levels pushing up prices at the pump; sticker shock over the price of bread and eggs;
a deepening housing slump driven by the ever-widening subprime meltdown. Recession … stagflation … deflation … the weakening dollar. The worst inflation in 17 years. Whew!
Around every corner, there’s a new Nostradamus, adding to the confusion. The airwaves and e-waves are filled with expert predictions and advice. But, opinions are like … well you know … everyone’s got one.
As an investor and consumer, my head is spinning. Do I buy --- do I sell --- do I hold --- or do I simply duck and cover until the storm passes?
The simple answer is ... yes.
To survive or even thrive, in current market climate, you’ve got to be flexible. One size does not fit all!
In the end, sometimes the best course is fall back on the lessons you've already learned.
Lesson 1 - Don’t put all your eggs in one basket - If, for example,
your portfolio is comprised primarily of equities or real estate --- diversify. David Swensen, Yale University’s money guru, has averaged better than 16% returns over the past 21 years. Through asset diversification, he has built an 18 billion dollar endowment that is the envy of the investment community. Swensen’s Yale portfolio holds a full suite of assets ranging from stock market indices to emerging market equities and even real estate. The key, according to Swensen is to hold assets which are either inversely or non-correlated with one another.
Lesson 2 - Follow the money – As we have seen time and again, big money goes where big money grows. Commodities are trading at all time highs. Rising global demand for raw materials and a weakening dollar have led to record prices for commodities including corn, rice and gold. Despite sharply rising costs, diesel fuel imports to China surged 49% in March. Jim Rogers, co-founder with George Soros of the Quantum Fund and best selling author of the books “Investment Biker” and “Adventure Capitalist,” believes that the bull market in commodities will last through 2017. From 1999 through March 2007, his Rogers International Commodities Index has posted returns of 281%, and 21% through the first quarter of the year. As Rogers puts it, “if this market were a baseball game, we’re only in the fourth inning.”
Lesson 3 – If its broke, fix it – The math is simple … if you’re not winning, you’re losing. If
you called your broker back in 2000, as the bottom started fall out your portfolio, he probably tried to calm your jitters by saying “look, we may be down, but remember you don’t loose unless you sell.” A truism yes … but in a tumbling market, not very comforting. Good markets always are followed by bad markets. If you've got a profit take it. If you’re bleeding equity, stop the bleeding. Being right isn’t worth the risk. As one savvy trader put it, "marry to your wife not your trades!"
Lesson 4 - Buy when there is blood in the streets – Legendary European banker Meyer Rothchild built his family dynasty on the notion that you “buy on the sound of cannons and sell on the sound of trumpets.” When prices fall, whether in the stock or real estate markets, there will be bargains-a-plenty at the bottom. As famed corporate raider Carl Icahn has shown time and again, buy into weakness --- sell into strength.
Lesson 5 – Go to the mattresses – In times of war or siege, Italian families would abandon their homes for safer surroundings. Soldiers would sleep on the floor in shifts. In the “Godfather,” this term became synonymous preparing for battle. The key is to apply this same mentality to your investments. The market is not a garden party. Your brokers are not your friends. Don’t be afraid to make hard choices even if means that you must part company with a long-term advisor. In truth, you are the only one who truly has your best interests in mind.
Lesson 6 – Cooler heads will prevail – Knee-jerk reactions are
a natural response as the markets appear to unravel. Recent stock market gyrations can shake the confidence of even most seasoned investors. The natural response is to convert to cash. While this may seem to protect your hard-earned equity, it’s not always the best course. With interest rates low and the dollar losing value against other major global currencies, not even cash is a sure bet. It's sensible to retain cash to pay bills or to have the flexibility to rebalance your portfolio with other assets. Instead of viewing the current shake-up as crisis, however, try to see it as an opportunity …
Lesson 7 - Don't accept candy from strangers - Need I say more?
HAPPY TAX DAY!
To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.
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