Good Advice During Turbulent Times

Sunday, March 23, 2008 | 08:39 AM

What happens when markets suffer a panic?

Well, a lot of things: investors deal with emotional outbursts, a frenzy of talking heads, and lots of really bad advice. At the same time, these dislocations create opportunity -- if you manage to keep your wits about you.

From an interesting article in the WSJ this week, comes this modified list.

1. Invest during a panic: When panic hits the front pages, put a toe in the water.

2. Don't speculate: Look for securities that offer modest, but predictable gains. Think Warren Buffett, not Steve Cohen.

3. Don't make too many bets: Feel free to sit most hands out. You should only place your bet when you really like the odds. You can be diversified without owning every asset class.

4. Be very wary of any boom: Remember, Price matters. Avoid buying tinto the hockey stick part of a surge -- that's way late in the cycle. If you are early into a sector, you should sell off 10% into each quarterly surge.

5. Don't put too much weight on expert financial analysis: Learn to become a self-sufficient investor. We have seen too many examples of where most Economists got the big picture way wrong, and when analysts were compromised by their firms.

6. Do you really need to pick individual stocks?  Most people suck at stock picking. Givent he universe of ETFs, you have a lot of options without the indiviudal stock risk.

7. Invest in stages: 99% of people will not pick the bottom; even less get out right at the top. Use dollar cost monthly averaging with indexes, and invest over time.

8. Only invest for the long-term: That means five years or more. On rare occasions, it means 10-15 years. Daily moves are noise; focus on the signal.

9. Consider a really good active fund manager: They do exist, but they are rare. Look for mutual funds where the manager has a terrific long term record -- ideally 10 years or more.

10. Everything has risk -- even cash:  Try thinking about what inflation is going to do to you if you sit in cash on the sidelines. There are, literally, no risk-free places to hold money.

A few caveats to the above:

a) Your own retirement timeline is very important. If you are 10 years or less from retirement, you need to be more conservative.

b) Know thyself. If you cannot deal with being underwater,then you must adjust accordingly. Long term is really very long term. That may mean patiently waiting for a decade or so -- think Japan in the 1990s, or the US from 1966 to 1982.

c) Inflation is pernicious, always present -- even when its less than 2%.

d) The time you have to manage your assets will determine how active you can be. Dollar cost averaging requires the leastamount if time and effort.

e)  Simpler is better.


Opportunity in Credit Crisis
WSJ, March 19, 2008



Sunday, March 23, 2008 | 08:39 AM | Permalink | Comments (17) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Good Advice During Turbulent Times:


Good Post, Barry.

Thanks for being out there during these turbulent and potentially historic times.

Posted by: BG | Mar 23, 2008 9:28:52 AM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™