Friday, July 10, 2009

Even a broken clock is right twice per day!

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There are investors and there are traders. Traders trade! Investors invest! However, there is one thing they have in common. None of them can "time the market". Truly, if they could time the market, many of the talking heads on CNBC would have made billions on last years crash, or this springs bounce, instead of keeping their jobs trying to sell us on the benefits of the "hot stock of the day".

For the average Joe or Jill, a good practice is to "Invest for the long term" in increments using dollar cost averaging (ie: have your investment money put into your favorite mutual fund every paycheck) so that you can level out the gyrations in the market. If you are a little bolder and want to do some of your own homework, then Invest in individual stocks of solid companies with great products, market niches and good management

No one is right all the time! Not even the investment greats like Warren Buffett or George Soros. If they make big mistakes, and they do, then how many more mistakes are made by the coffee fueled, adrenaline pumped, talking heads on CNBC (fast money, Cramer, Kudlow, Kneale etc) Just because you took their advice and got lucky once, doesn't mean they are going to be right next time. They make mistakes, just like you do. Just like I do. Just like we all do.

It is important to do your own homework when investing. If you don't feel you have the time or expertise and you just want to invest in mutual funds, then at least do enough homework to pick a good manager. Investing in mutual funds is essentially investing in good management. 60% of fund managers today "Do not beat the Index". In other words, if you just invested in a basic index fund, with a lower fee base (because it is tied to the Index of the market you are investing in) on average, you will beat 60% of the mutual fund managers out there who get fat fees, for their so called expertise.

Nobody sees a bull market in our near future right now, but remember this. Bull markets always climb a "wall of worry". Bull markets are never identified until most of the profits are already made. Bull markets love inflation. A weak currency (read u.s. dollar) always increases inflation. With the current trend to deflation, markets in turmoil, with investors sitting on the side lines and the Chicken Little's clucking that the "sky is falling", Now may be a great time for contrary investors to take the opposite view and invest in a basic Index fund that costs less than 1% in fees. Or maybe not!

You can always keep your dollars on the sidelines, where they are sure to lose value over time. You could invest in mutual funds administered by a good manager who's track record shows a consistant return better than the Index.

Or, you could act on the next hot tip from one of the talking heads on CNBC. After all, "even a broken clock is right twice per day"!

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