Thursday, October 23, 2008

Closer to the bottom

The most expensive investment that most people will make in their lifetime is comfort. When the herd is confirming that stocks are the way to certain wealth and security we naturally conform to that view. After the bear market of 2002 the explosion in fixed annuity sales is legendary as those burned proceeded to self immolate again with low return "safe" investments.

We are at the inflection point of change. The news media doesn't let us forget for a moment. Stunned investors don't open their statements for fear of what is within.
Even those who can say, "I told you so" are being trotted out ad nauseum into the now believing public eye.

Turn off the television, put down Time magazine and think. What did we do wrong? Why? Were they errors of analysis or errors of trust? We live in a world of never ending information flow and very little wisdom flow. It is simply the nature of our time. One does not think clearly when still gathering information no matter how useless it may be.

I too was caught in the minutae because the minutae moves markets; for a day or a week, perhaps a quarter. It is not how I see the world, but the current is strong when swimming against it and sometimes it wins.

Now to continue the metaphor a bit longer, we've dragged ourselves onto the shore breathless and a bit battered. Now the journey continues.

For all the chaos and panic in both economy and financial markets, this it the time patient investors have been waiting for. But it should be done right and coherently.

I have a friend who through the grace of dumb luck and a job change left her 401-k 100% in the Stable Value Fund offering. While others were losing ten's of thousands, she made $25. Recently she has put 10% into an S&P Index Fund. Even if the market becomes even more apocalyptic I estimate her downside risk is 3% of her portfolio if the market drops another 30%.

Create a structure and then stick to it. Get help if you need it.

John Barnyak