March, 2011

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Investing is not the place for emotional attachments

Americans are a people of faith and belief- that is one of the things that binds us together. Organized religion is an important part of most of our communities and a major social network for many people. Sports have become a second major source of faith and socializing for many. In baseball, who can forget Tug McGraw’s “Ya gotta believe” rallying cry for the New York Mets? How about the hapless New Orleans Saints uniting the hurricane ravaged city of New Orleans on their drive to become Super Bowl champions?  Or the way we root for “Cinderella” during March Madness? Our faith and emotional attachments do much to enrich our lives and are a precious commodity in our lives.

 

Unfortunately, emotion and faith have little place in our investments. We invest money with a fairly consistent objective- to fund future economic needs through investing our hard earned capital. Implicit in this process is that we invest in order to make a real return (something beyond inflation). Achieving this goal is not a given and usually requires us to take some risk and to carefully weigh that risk in light of potential returns. We refer to that process as Variable Risk InvestingSM.

 

The traditional world of investment advice is filled with emotion and faith. Primarily, this comes in the form of “experts” who are always of the opinion that now is the time to buy investments. There is never a year in which you are advised not to invest in equity markets. A lot of advisor “guru’s” declare that you should have “abiding faith” in the greatness of free-market democratic capitalism and should therefore fund all future needs by investing in equities. Our contention would be that your “faith” in America is a wholly different issue from the expected returns you have on your investments moving forward. If stocks are way overpriced and the economy is weakening, you are looking at lower than normal returns and higher than normal risk. Is it prudent to invest all of your capital in such a market? It would not be our recommendation and history shows the results can be disastrous.

 

The flip side of this phenomena are the marketers who make their money by predicting that disaster is lurking immediately ahead (the fear side of fear and greed is their forte). For them, the great reckoning is always upon us. Oddly, they always offer a solution that includes them profiting from you getting out of the way of the impending doom. Bear market funds, gold sellers, equity index annuity sellers and many others await you in this realm of the world. If they can get hold of your fear, they can do pretty well for themselves regardless of your fate.

 

We believe that realism (not faith or emotion) is the only course to steer to financial success. To participate in up markets and to avoid losses as often as possible is the road to success. To either let your emotions drag you down a dark alley or to always look at your portfolio through rose colored glasses is counter productive. Capital protection and growth is a serious business. Always treat investing as an objective task. It helps you “live long and prosper”.