Okay, so did you know that this is officially “America Saves Week’? This sobering statistic is why official weeks like this are needed to promote financial literacy and savings:
- National Savings Needs: Most Americans do not have adequate savings to meet major emergencies, let alone accumulate enough savings for retirement. The typical American household has less than $100,000 in net wealth, including home equity and 401k accumulations, and only about $10,000 in net financial assets. Lower income families have much fewer resources.
To learn more about America Saves Week click on the link: www.americasavesweek.org
This is a fantastic list that should be required reading each year for anyone that invests (this includes us Investment Advisors). Credit goes to MarketWatch for this article which appeared in June 2008 about Bob Farrell’s rules for investing (see the Market Watch article to find out more about Bob). I have it taped to the wall in my office so that I don’t forget!
1. Markets tend to return to the mean over time
By “return to the mean,” Farrell means that when stocks go too far in one direction, they come back. If that sounds elementary, then remember that both euphoric and pessimistic markets can cloud people’s heads.
2. Excesses in one direction will lead to an opposite excess in the other direction
Think of the market as a constant dieter who struggles to stay within a desired weight range but can’t always hit the mark.
“In the 1990s when we were advancing by 20% per year, we were heading for disappointment,” says Sam Stovall, chief investment strategist at Standard & Poor’s Inc. “Sooner or later, you pay it back.”
3. There are no new eras — excesses are never permanent
This harkens to the first two rules. Many investors try to find the latest hot sector, and soon a fever builds that “this time it’s different.” Of course, it never really is. When that sector cools, individual shareholders are usually among the last to know and are forced to sell at lower prices.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
This is Farrell’s way of saying that a popular sector can stay hot for a long while, but will fall hard when a correction comes.
5. The public buys the most at the top and the least at the bottom
Sure, and if they didn’t, contrarian-minded investors would have nothing to crow about. Accordingly, many market technicians use sentiment indicators to gauge investor pessimism or optimism, then recommend that investors head in the opposite direction.
6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
Markets and individual sectors can move in powerful waves that take all boats up or down in their wake. There’s strength in numbers, and such broad momentum is hard to stop, Farrell observes. In these conditions you either lead, follow or get out of the way.
8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend
9. When all the experts and forecasts agree — something else is going to happen
As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”
Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.
10. Bull markets are more fun than bear markets
No kidding.
Reading through some financial publications I once again came upon a discussion of compounding interest. Most folks have seen and heard this stuff many times, but it can’t be reiterated enough. Especially if you are trying to explain to kids / teens / young adults to think about long term financial security. I know – it sounds boring. I can immediately see younger folks tuning out when I talk about this. But the chart doesn’t lie and the numbers are amazing. I just wish I had done this in my 20’s. Like many folks I was more concerned with other things to think real hard about it.
Below is a chart that I just did that compares 2 folks: one saves $2000 a year beginning at 22 for 10 years. The other waits 10 years and saves the same amount but all the way until retirement. They both earn 8% annually. Looks like the early saver wins again.
(more…)
The investing world is all abuzz about what is happening with Gold. This week Gold is up about 5% taking out the all important $1000 level. I really thought $1000 would be a cap at least for awhile. Why is that you may ask? Well anytime something is talked about so much you have to wonder if we are nearing a top. Remember everyone talking tech stocks in 1999? Remember TV shows about how to flip houses just two years ago? Well, all I see and hear now is ads about buying gold. Buy gold for investment, sell gold at your neighbors Gold party. Fundamentally, I can see folks flocking to it as a safe haven but it still makes me a bit nervous.
So what caused the ramp this week? Several countries got together and discussed abandoning the dollar as the standard for oil transactions (many years out), this caused a drop in the dollar and a ramp up in commodities including Gold. Right now it seems Gold is moving on fears of the US debt and weak dollar more than the typical inflation fear.
How far could Gold go? It could go sky high as we have seen with oil last year, when momentum starts carrying a sector it tends to run even if the fundamentals don’t support it. However, realistically the dollar will bounce as it is nearing technical support and Gold will pull back. At least that is what I am waiting for. Then if it holds up maybe it will be time to jump in.
Of course I could be completely wrong and the dollar could continue its slide and Gold could keep pushing on up to $1500 an ounce. It’s a chance you take.
