Yesterday I was asked by a foreign news publication some questions about my reactions to the current financial problems in the US markets. As I wrote my responses, I thought to myself “this is so boring that there is no way that it will be published”. I have no juicy stories of hoarding gold, selling all my stocks, or fleeing to ultra-safe bonds. Instead, here are my Ambien-like responses:
What have you been doing to protect your assets since last summer (when sub-prime mess hit financial markets)?
Nothing, really. I keep the same general asset allocation and haven’t sold anything. I already have investments in inflation-protected bonds and broad stock index funds, so I am not worried about short-term losses.
To avoid investing losses, in trading, what kind of financial products (like stock/bonds/REIT and so on..) did you sell? and what did you buy instead? How did you change your asset allocation?
I did not change my asset allocation at all, as I still have a long-term investing horizon.
Have you changed your thoughts about investment under current crisis in financial markets?
No. I did consider adding some commodities for additional inflation protection, but I ultimately decided against it.
Have you been negatively or positively impacted by the current financial crisis?
Negatively, I suppose. Besides the drop in my investment portfolio, my house which I bought recently will probably decrease in value over the next year or two.
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Since when does investing need to be exciting? That would sound more like speculation to me. I hope those news people learned something from your good answers.
Yeah, that’s pretty boring! How about this… let’s try some sexy investing, like day trading or hedge funds.
I always see those guys on TV driving Ferraris and Bentleys, living it up. If they show it on TV it has to be how it is for everyone. So hot!
That is exciting!! You figured out that hysteria doesn’t bring financial prosperity. You genius you. Imagine if the media would preach that gospel how much calmer people would be about the markets.
The fact of the matter is, smart investing is boring. You are doing the right thing. Selling when market is down is stupid and panicky, converting a paper loss into a real loss. Re-balancing or buying even more while the market is ‘on sale’ is the way to go and takes care of a ‘down market’.
What’s exciting is sensationalized news and market timing, neither of which belong in a retirement portfolio.
ZZZZZZZZZzzzz.. huh? Oh, I’m sorry, I must have dozed off while reading your post. The most exciting part of your post was where you considered buying commodities, but decided against it. Woo! What a rollercoaster ride of financial advice!
I agree with you though. The reporter will look at your answers and they’ll say, “Sacrebleu! I can’t use this. It’s boring as Merde!” They’re looking for people who lost everything or made out like a bandit by shorting stocks.
You could always suggest and reinforce your buy-and-hold philosophy, citing the reasons why you haven’t moved any assets through the market downturn. Since each question seems to be leveraging on asset movement, expounding on your philosophy with each additional question would get the point across and, in my opinion, be much more interesting.
That’s not boring to me. I would have answered the same.
You could say it was a positive impact, if you haven’t realized any losses and were able to purchase a home at a lower price due to the soft market.
J –
I take the time to rebalance my portfolio in times like this. I don’t mean reallocate, I just mean sell the high flyers and buy more of the losers.
Boy, did I make a lot of money on the Gold portion of my portfolio. 🙂
That’s about as exciting as it gets for the asset allocation investor.
-Wes
It’s interesting how we share the same attitude regarding the crazy rollercoaster market, the falling dollar, and rising inflation. I considered altering my 401k allocation to include more bond funds, but decided not to.
In the end, I consider this just another bump in the market, and I have to hope that a long-term “bump” doesn’t happen when I’m ready to retire 🙂
Good for you! Unfortunately, you’re right, no one wants to hear the boring stuff, even if it is the better strategy. So people will continue to not hear this, and continue to panic whenever the market heads south.
That’s the investing strategy I’m attracted to. Right now there are too many investors running around like chickens with their heads cut off selling everything they own because they see some bad news. In turn drops the market, and provide long-term value investors like you and I some great prices on great companies.
I will admit, the publication is probably looking for the type of investor I mentioned above but don’t change your strategy. Right now, everyone is making their speculations and when the bear turns bull, those who “GUESSED” correctly will be the next market genius.
I say stick with your plan. You not boring, just conservative. 🙂
On the last question, it is only a crisis if you are forced or choose to sell while the market is down. This is what is known otherwise as an opportunity to those with a long term plan.
Ambien is (supposedly) non-addictive … so is “boring” investing – it actually takes more discipline that ‘trading’, but is the only sure way to $1 mill. …. or $7mill. Thanks for the honesty! AJC
Someone else asked by e-mail what I meant by inflation-protected bonds, so I added a link to my target asset allocation in the post.
Well, not boring, just not that interesting (media is looking for eye catching topics, not mundane matters). It’s like that Biggest Loser show, if you keep seeing them eat less, work out more, the show will go off air within weeks. Instead they spice it up with all the things that we usually don’t associate to weight loss. Lose 1/4 of your body weight in 5 months is not healthy, it forgot to add that.
On the one hand, shame on the retail financial press for writing hysteria stories that encourage well-meaning people to sell when the market’s down, buy when the market’s up, chase returns, and run up big trading expenses.
On the other hand, thank goodness for the financial press for writing hysteria stories that encourage well-meaning people to make sub-optimal investing decisions that buoy up returns for the asset allocator crowd.
As Warren Buffet put it, “The stock market is a device for transferring money from the impatient to the patient.”
TIPS work, but not in a delfationary environment…like we are in.
You should have told them that not only are you super bullish, but that you think that the current market presents a great buying opportunity for long term investors.
As far as the “daytrader” guys driving fast cars.. These guys don’t day trade on their own account. They sell ,sell ,sell stuff to people..
Love your site for reasons like this. I find this “long-term” investing philosophy so similar to the use of statistics in baseball. Day traders hate to hear it, but the numbers have shown that over the long-term, investing conservatively in broad-based indexes has been the safe bet. Some sportswriters hate to hear it, but statistics can be used to show that sometimes, the sexy, splashy players aren’t necessarily the best value for your dollar, in terms of getting on base a larger % of the time vs. having a higher batting average, etc…..
I won’t get into that because it probably makes for a boring read, but just wanted to say I share your view that if you follow the historical numbers, this “crisis” isn’t as big of a “crisis” for the long-term investor as everyone is making it out to be.
banditfist, I’m not sure what country you’re in, but I don’t think there’s any worry about deflation these days. Yes, the housing market bubble is bursting, but everything else is pointing to higher inflation….. the fed injecting money into the economy, higher fuel prices, rising inflation in china…
sorry dong, but there are many people talking about deflation, stagflation, etc. inflation is obvious but not all encompassing
Money managers used to call Buffett’s investment style ‘boring’, some still do.
Just becaude the Fed is destroying the value of the dollar via low interest rates and causing speculation and increases in commodities is not inflation. The Fed is not increasing the money supply at all.
Keeping your “boring” style of investing means you won’t ever have the best returns *during any given short period of time*. However, chances are really good that you’ll have the best *long term* returns. I’ll take that any day.
Chasing the hottest returns today is a fool’s game. Leave it to the fools! Smart llamas take a long term approach.
Try short terming, just a small part of your investment.