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reddingrunner (92.53)

Guess what?



November 19, 2007 – Comments (0)

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.

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