Scenario: Well another choppy day of trading on the Australian stock market after a fall overnight in the U.S. Any hint of bad news sends stocks heading south and investors big and small are a nervous bunch these days. The worst part about times like these is that anyone with a view of where the market is heading seems to get media time and what is even worse is the worn out phrases they use. At some point the market will stabilise, like it always has, and then continue to rise along with the growth of the global economy unless the end of the world really is nigh.
Let’s just focus on facts. Ever since caveman Ug traded his nice stick for caveman Eh’s nice shiny stone the global economy has been on the way up. Not even the fall of the Roman Empire and the Dark Ages put the brakes on for long, since all was going well in Asia and the silk road chugged along nicely. A few plagues, wars and a few more wars have failed to stopped global growth, although it would not seem like that if you were in the middle of a war zone or had a nasty touch of the black death of course.
Do I have a point? Well yes, and that is the best thing an investor can do is sit down and think about why they invested in stocks or bonds etc. in the first place, because none of us have any control over the direction of the global economy and nobody knows what it will do over the short term. (however economists have so many theories, models and predications in circulation that one of them is bound to be right in 12 months time)
If you are short term investor then it is likely your approach will be different to that of a long term investor, but the key thing is to at least have an approach. Ask yourself some basic questions like can I handle some further stock price declines? How much am I expecting to get in dividends this year? What is my cash flow situation? (and do not forget to calculate the cost of any margins loans you need to cover) Do I think now is an opportunity to buy or a reason to sell?
Now is not the time to lack direction in your investment strategy, it does not have to be complex strategy, but at least have one. Also be wary of people making silly broad comments like “sell everything” or “buy more” as they have no idea of your own personal situation….unless of course you treat investing like a day out at the racetrack.
Finally my little rule of thumb is that I am wary of any so called experts that support themselves via commissions, newsletters or salaries. Let’s face it, if they were so good at picking stock winners they would be sitting on their private yacht in the tropics and would hardly bother dealing with mere mortals like you and I.
..and remember, there is more to life than investing!
(This post was originally written in early 2008)