Words of Wisdom

In Monday's WSJ page A19, Opinion page, Burton Malkiel wrote a piece titled "Keep your money in the market". Mr. Malkiel is a professor of economics at Princeton University and best known as author of "A Random Walk Down Wall Street", a book that is fundamental reading for anyone interested in the art of investing. He writes, "A century of investing experience, as well as insights from the field of behavioral finance, suggest that investors who bail out of equities during times like theses are almost always making the wrong decision". He mentions that "the herd instinct is extraordinarily powerful": we think other people must be smarter than us, that's why they are selling and that's why we should sell. He suggests, that regular rebalancing and review of a portfolio occur on an annual basis and at that time, changes are made, rather than as a response to fear and despair over market conditions.
In Wednesday's WSJ, James B. Stewart compares bubbles and panics and how similar they are as they both measure extremes in the market. He chronicles the anxiety he felt entering a buy order when the market was tanking and then watching the market go down even more---not a good feeling, I know, I did the same. But I know as does he, that in the long term, markets go up. A financial crisis is about courage and about discipline of staying the course. If I knew when the market was going to hit a high to sell and when it hits a bottom to buy, I would be a very rich person today. Truth is, it is virtually impossible to time the markets, to know when to get in and when to get out. You set your course, structure your portfolio and make changes as life and circumstances dictate. I am here to help you stay the course.
Today, there are more fantastic investment opportunities available than we have seen in a decade. Municipal bonds are cheap, closed end funds are cheap stocks are cheap commodities are cheap--the only one thing that is not cheap are treasury bills and bonds. Everything else is on sale!!
Just thought it would be nice to counter what we hear on the TV all day long.

3rd Quarter in the Red

87% of all mutual funds posted losses for the year ending 9/30/2008, this according to an article in the Washington Post which you can find here: http://www.washingtonpost.com/wp-dyn/content/article/2008/10/04/AR2008100400157.html
I think the worst part of this horrible bear market we are in and probably how it is the most dissimilar from previous bears, is that nothing seems to be doing well--except maybe Treasury bonds. Commodities, international, small cap, real estate...asset classes that are normally not perfectly moving in sync with the large cap equity markets, are all down....no safe havens. There are a few silver linings here, at least that I can see: the VIX which is a measure of volatility and often dubbed the "Fear Index" is at a very high level. This high level indicates an extreme in the market, which usually doesn't last too long. The S&P 500 right now is at 1048.9 which is down -28.8% year to date and down -32.98 from the high reached last October. The average downside for bear markets is in the -30% to -35% range.....we just need a few more people, besides Warren Buffet to see that there is value in the market and begin to buy. Notice however, that Mr. Buffet sees this debacle as a buying opportunity, not a selling opportunity, which is what made him a very wealthy person. Buffet is 78 years old and has seen many decades of different types of markets. Like him, I have faith in the markets and am optimistic.