There was a profile in Barron's of a mutual fund manager named Tom Forester. The following passage about his philosophy is very instructive and similar to what I try to do;A portfolio manager must "watch [his] downside," and he isn't afraid to sit on the sidelines if a rally seems to have weak underpinnings. "My time horizon is three or four years, so what do I care if I'm low for a quarter or two? I'm just trying to win the game. I don't have to win every inning.
I refer to the entire stock market cycle which I think is a little longer than three-four years but it is the same concept.
A point that I think is crucial and worth repeating many times is that the priority is having enough money when you need it, or perhaps more specifically giving yourself the best chance possible to have enough money when you need it.
Clearly it is difficult for folks to view the task from this perspective for several reasons. Most things in print and on TV focus on much shorter time frames like "call the close" which is a ludicrous proposition in terms of being right and even more so in terms of importance for the vast majority of people.
Unfortunately for too many people the key to the best chance possible for having enough money will require an increased savings rate and or lowered expectations about lifestyle if there is anything to the idea of this being year ten of an 18 year sideways to down market.
While this may sound daunting I believe thinking about it now, sort of ahead of time, gives the opportunity to make some changes toward increasing the savings rate. Much as people don't want to hear this there are behavioral solutions to many of the instances of poor savings rates, very low 401k balances and the like. Obviously some folks really are in bad situations but not as many people as it seems.
4 comments:
Good morning Roger and thanks for the post. BTW, just spotted you quoted on Market Watch "Cash in on Currency Shocks." Nice advice. Still wondering if gold won't step up to the plate when the true weakness in our currency becomes clear to more people. Mahalo!
Kristin
You are correct there is to short term a fixation by many including my self at times. I think there has been to much fixation on investing around this correction which will likely not be viewable on a long term chart.
Unfortunately for too many people the key to the best chance possible for having enough money will require an increased savings rate and or lowered expectations about lifestyle
Other problems include getting quality financial advice (which is much harder than some people think) and being provided sufficient choices in a 401K to take advantages of the current economy (for example my company has zero international choices).
Currently I'm 50% in cash since the market seems so unstable. It is a tough time for experts to figure out the market much less than the average person.
I enjoy your blogs. Thanks. Rich
I like to buy stocks in situations where two companies hold almost the entire area like coke and pepsi etc. I restrict myself to blue chip stocks with wide moats. Has anyone ever done a study to your knowledge on this approach
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