Saturday, February 2, 2013

I'm not humbled

Dow’s Run to 14,000 Humbles the Worriers — For Now

I'm a worrier, but I'm not feeling terribly humbled.  At this point, everyone should be worried, but instead the exchanges cheer as they watch the Fed's cash push the indexes to multi-year highs, then slap each other on the back as if they're some kind of geniuses.  Of course, now the big back slapping show is drawing in more retail investor money, in part because there just aren't any returns anywhere else, so perhaps there is some reason to celebrate.

"So far in 2013, the "risk" has resided in over-thinking the situation by focusing on the potential pitfalls and complications that might arise from a slow-growth economy, peak corporate profit margins, policy dysfunction and stock prices that had already doubled since the March 2009 market bottom."
Over-thinking?  No, the risk is under-thinking, a phenomenon that is occurring with greater and greater frequency.  The analysis of the market is becoming something like "It went up, therefore it will go up."  The kind of "thinking" that results, eventually, in crashes.  In the meantime, though, this "thinking" looks like sheer genius.

 The rest of the above-linked article proceeds to analyze the current market in terms of historical markets.  But today's stock market is not really comparable to past stock markets, so, it's really not a good idea at all to compare this year, which sported a great January, to past years that also started with a great January.  This time is different, although we still really can't say whether this year will end up all that different.  The end result could be the same, but for significantly different reasons.

Then again, the assumption that this year will somehow resemble past years could lead to a significant, bad outcome, and that's what I'm worried about.  The days of "buy and hold" investing really are over.  Of course, if you've paid much attention to the stock market over the last decade or so, you would already know this.

So, how can we avoid being "humbled" in the future?  By simply admitting that we don't really know what's going to happen, or at least admitting we don't know when it will happen, and act accordingly.  Diversify.  Keep some cash.  Buy some whiskey.  Learn to live sustainably.  And, recognize that the more the stock market went up yesterday, the more ready you need to be to pull the trigger and sell tomorrow.

2 comments:

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Kirk DeBaun said...

Thanks for your kind comment. At the moment, I don't have a newsletter, although that is something I plan to do in the future. For now, I'm still trying to figure out where my focus is going to be, if I'm going to have a focus at all. Again, thanks for the comment.