Wednesday, January 23, 2008
Just Like Las Vegas
The current stock market volatility (roller coaster style) is cyclical (but unpredictable) and it feeds media frenzy in the same manner as a hurricane, earthquake or tsunami. My demographic puts me in the class of an investor somewhat reliant in the future on the integrity of a system that has some loathsome aspects. Many of the decisions that affect the direction of the market are made by Wall Street professionals whose goals are extremely short term. What profit can be turned today? What scheme will result in a big return for those closest to the deal? The long horizon of the rest of "us" is not primary. Many folks who don't even think about the stock market are affected by it. Teachers and professors count on pensions that are in large part tied into the stock market. As to the individual investor, in order to outpace inflation, one just about has to have some savings invested in equities (stocks). Relatively safe money market funds do not beat inflation. The tragedy of these big drops is that tons of folks who can least afford losses panic and cash out rather than gritting their teeth to wait for the next up cycle. If an investor has a diversified portfolio and can resist the urge to try and time the market fluctuations, patience is the primary strategy. For those inclined toward Vegas type thrills, timing the highs and lows provides the same kind of rush and, often, the same result at the end of the day. Busted!