With all the negative talk about the credit crisis and how it will lead to recession, pundits opining on demographics and economics seem to have totally forgotten about baby boomers. That's pretty amazing, since for the last 40+ years almost no one ever discussed the effects of demographics on the economy without focusing on boomers. [more]
All investing is based on guesswork. Some investors try to figure out what a stock, or the market, will do short-term and invest accordingly. The shorter the term, the more guessing is involved and the harder it is to be right more than 50% of the time. In fact, because emotion becomes a much bigger factor it is rare to see anyone get close to 50% over time.
Investing for the long-term requires guessing where various companies or economic sectors are likely to be in 5-7 years. It's a pretty safe (not certain, but as safe as any guess gets) bet that the world economy and the market will be higher in the long run than it is now. So if you just buy an index fund and forget about it, you'll do better than most.
If you start guessing about megatrends and how they'll affect various sectors, your odds of getting the big picture right should be 50% (e.g. either oil will be a good sector, or not); but could be much better.
If you base your strategy on rational analysis you might be able to project some likely trends and capitalize on them. The difference here is that you, looking to the long-term, will not be doing short-term buying and selling based on mass emotion.
Your favorite sector is plummetting and everyone else is bailing out (selling low)? You hang on, maybe even add to your holdings, confident that corrections will come and corrections will go and in the long run your sector will prevail.
You only bail if conditions change so dramatically that your beliefs about what will be happening 5-7 years from now need radical revision.
You still might lose. Unpredictable events in the next 5 years can radically change the picture and cause your old vision to be consigned to the junkyard of failed prophecies.
But, by basing your strategy on reason and analysis and not being subject to the emotional roller coaster of temporary ups and downs, you have reduced your risk and increased your possibility of gain.
We're having a correction. A lot of my picks are tanking. I'm not surprised, most of them rose too fast earlier this year. The credit crunch is a temporary blip- it might make for more ugliness over the next year or so. Or things might turn around tomorrow. I have no clue about that. But I'm still comfortable with my long-term views. [more]
That seems to be the advice a lot of people are following this week. Nobody, and I mean NOBODY, knows when the bottom of any dip will come. Next week, or by Christmas, the market could be down another 15% or up 15%. There's bad news and there's good news and this week the bad news is getting all the headlines. That means, if you have cash, a buying opportunity is either present or near (I'm holding off a little longer).
In real life I was up 30% early last week and now I'm up only 20% for the year. Ouch! But I haven't made any changes. In CAPS I've just done some minor tweaking.
If you have stocks, then if they were good long-term picks a month ago, they are still good LT picks today. Hold. Why would you buy a stock if you thought it was something you should dump if the market dips? Maybe this dip is telling you that a few of your picks weren't so bright after all- go ahead and dump those if you think they won't be higher six months from now than they are today (especially the ones that were underperforming when the market was going up and are tanking now).
Otherwise, sit tight. If your emotions "can't take this beating any longer" - just walk away for a week or two- pay no attention to your portfolio. You can be an emotional investor or you can capitalize on the emotions of other investors. Your call. [more]