Wednesday, February 11, 2009

Investment Advice

Still not feeling well although at times I feel fine and others I'm all congested. I guess I'm all messed up! Right now I feel decent so I will write..

There was an article in the Wall Street Journal about how lots of investors in Hong Kong have been turning to Feng Shui masters (i.e., fortune tellers) for investment advice because the economy is so bad and they have lost so much money.

Business has been up for these hucksters, er, Feng Shui masters and they have become quite popular, even dominating investment conferences that also feature notable investment industry advisors on the panels. The WSJ reported that the majority of questions get directed at the FSM's, causing the real advisors to get discouraged.

At first I was thinking how stupid it is to listen to a fortune teller, but on the other hand, listening to the professional investment advisors doesn't really seem to be any better than throwing a dart at a stock page, either. In either case, you are asking them to predict the future, something no one can do. But the real answer here is not that professionals don't do any better than the market as a whole so why not trust a FSM, the real answer is two wrongs don't make a right. You're not going to do any better than random chance by listening to either of them.

I think the best advice is like this lyric or song title from Bob Dylan (I don't like his songs so that's why I am not sure which one it is or even if I have it correct but I think he wrote this): You don't need a weatherman to know which way the wind blows.

I mean, if you looked at our economy the past couple of years, common sense would tell you that the boom couldn't last. How long could house prices keep going up and up, and the stock market do the same? Making loans to any old joe regardless of their ability to afford it was bound to result in a crash. And with everyone buying into the stock market, where was the money going to come from to keep fueling it?

There were those who warned that the crash was coming but crowd fever kept the euphoria going. We just didn't want to believe what was right before our eyes. After all, who wants to be the party pooper? As long as you stay in agreement with the masses, you can't look that stupid individually.

On the other hand, look at things today. They say we're in a recession. It certainly isn't pretty. Companies are laying off people left and right, the unemployment rate is rising, sales are declining, big corporations are begging for more bailout money to squander.. it's a mess.

Have we seen the highs before? Yes. Have we seen the lows before? Yes. Every time people say, but this time it is different, but it really isn't. It's all part of the up and down cycle that keeps rolling through history. As long as we are capitalists, it's going to happen.

Every time we've encountered a low, a high has followed. So being the weatherman, what does that tell you? We've seen fire, we've seen rain, we've seen sunny days that we thought would never end. With things as bad as they are and the stock market at pretty low levels, now's the time to be thinking about buying into it.

Yes, it may go down more before it goes up, but no one knows. The only thing I feel pretty certain about is that before long, it will go back up, quite a bit higher than it is now. If you have funds that you can afford to put aside for a few years, now is the time to put it into the market. If this country somehow takes a huge dive and goes out of business, well your money isn't going to be worth anything anyway so what the heck, why keep it in your mattress?

Research has shown that the investment "pros" do no better than average; that is, the rate of returns they get are actually lower than the market does by itself. In other words, on average none of them "beat the market." So why listen to them? Except for those who possess illegal insider information, they don't know anything more than you or I know - we can all see what is happening and it is a matter of using your common sense to interpret it, something you don't need a college degree to do.

Like I said, you don't need a weatherman..

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