Never Ask a Bear
"You can invite a bear over to play, but don't expect him to know the rules!"
This is a line from a new children's book, but it could also be good advice for investors. Although I am not an economist and I have only recently (in the past few years) paid much attention to the stock market, I have learned a few things along the way. One of the things that I have figured out is not to trust anyone who calls himself an expert. Especially if that so-called expert claims to know more than I do about the world and how it's going to h*ll in a hand-basket.
For example, here is a virtual conversation between me and a bear that demonstrates why you should never ask a bear for advice:
ED: How can I find a good stock to buy for a long-term investment?
Bear: Any clown can buy a good stock when the market is going up and the skys are blue.
ED: Should I be afraid to invest because of the continuing concerns of unemployment and housing declines?
Bear: History and the future rewards people who realize fear and scare tactics are opportunities for those who value things.
ED: So should I look at buying a home now while everyone is afraid and prices are low?
Bear: The Fed has been buying 50% of treasuries or your beloved housing market would have been long dead by now.
ED: Well then, what about gold? Some people say that when the dollar is declining and there is fear of inflation that gold is a safe harbor. What do you think?
Bear: ... the fall of the gold standard in Britain precipitated the Great Depression, and since I'm saying the era of dollar supremacy is ending, I'll obviously be examining what comes next.
ED: Wow - so I should avoid stocks, rent rather than buy a home, stay away from gold. How can I invest for the long-term in a way that is profitable yet avoids high levels of risk? Invest in Bonds perhaps?
Bear: We can now add US Government bonds to the list of bear markets. While I'm not saying that the 10-yr and 30-yr bond yields won't touch these yields again to make a double bottom, I am saying that the 10-yr all-time low of 3.09% and the 30-yr all-time low of 3.49% made on November 21st, 2008 are unlikely to be breached, save the real Great Depression Part II.
ED: You seem bitter. Would you like some honey?
Bear: I've been hiding in the fetal position since this spring wondering if there was any left. Yes, please.