Monday Morning Mid-Summer Market Wisdom

by Wayne Ferbert on July 1st, 2013

July is here and the market usually goes in to low volume slowdown for about the next 8 weeks. That doesn't mean the market can't move a lot - it just means the volumes won't typically be as high. And the financial media will be working hard trying to get your attention during the lazy days of Summer.

This morning, I found an article that I recommend every person that invests should read: whether you make your own investment decisions or you hire an advisor.

The article comes from Jason Zweig from the Wall Street Journal. He writes the Intelligent Investor column and his stuff should be a regular read for the investor with the long-term horizon. Here is a link to the article.

I have pulled out the best sections below. He writes about how the best financial advice rarely changes - it just gets re-packaged a lot. 

That’s because good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.

The advice that sounds the best in the short run is always the most dangerous in the long run. Everyone wants the secret, the key, the roadmap to the primrose path that leads to El Dorado: the magical low-risk, high-return investment that can double your money in no time. Everyone wants to chase the returns of whatever has been hottest and to shun whatever has gone cold. Most financial journalism, like most of Wall Street itself, is dedicated to a basic principle of marketing: When the ducks quack, feed ‘em.

In the end, though, you need to resist the temptation to make a lot of changes. Instead, play for the long-run by taking the long view. Markets go up and down in cycles. Don't chase the hot category.

My role, therefore, is to bet on regression to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors’ own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.

And in the end, buying things that are on sale will always work to your advantage - over the long run. Avoid the "this time is different mentality". Its never different.

But this time is never different. History always rhymes. Human nature never changes. You should always become more skeptical of any investment that has recently soared in price, and you should always become more enthusiastic about any asset that has recently fallen in price. That’s what it means to be an investor.

Posted in not categorized    Tagged with no tags


Leave a Comment