The American economy is based on one major premise: its arc is long and chaotic, but it bends ever so slightly upward. From this, I’ve arrived at several working strategies. One, I do not invest on a short term basis in the stock market. Two, I commit to business ventures for the long term. And, three, I don’t take the ups and downs of the economy seriously. These strategies have treated me well over the years and I would recommend them to you for your consideration.
1. Never invest on a short term basis in the stock market.
In my twenties I “played the Market.” That is, I attempted to call the highs and lows of the stock market. I thought that the market existed in order to make a fortune off of killer stocks. It took me over a decade to realize that was one of the most foolish things I had ever thought.
In those years, I took substantial buy/sell risk positions, but had only one good call. By the time I was thirty five, I was about even with the market, with the growth arrow about ready to point downward.
A change was in order. As I reflected on my situation, I decided to go back to when I first started investing as a child. My mother got me into mutual funds (Keystone S4 was the first one) with the advice: “let it ride.” I did (actually I had no choice. I was only ten at the time and the fund was in my mother’s name.). And, over time it paid off.
For well over twenty years now I’ve followed my mother’s advice with one exception. I now invest in many different kinds of mutual funds, on a monthly basis, and rotate the bottom 10% once a year or so. By doing this, I’ve probably averaged an annual rate of growth of about 7%. That’s pretty good considering the problems we’ve encountered with the market since 2000.
2. Commit to business ventures for the long term.
For the first fifteen years of my professional career I was a teacher. I had no thought of doing anything else. But things change. I was about 37 or 38 when I owned my first company. It was a good and bad experience. It was good because we had a great service we were selling: a management consulting process that helped companies do strategic planning. It was bad because I was in a partnership where my partner wanted 60% of the business. As minority partner I quickly found out I had no control over the business, and I was like an employee.
As a result of this situation I fought to get out of the partnership. I did, and as a result was able to control all the variables of the business. That was the best decision I ever made, and the most lucrative one too. If you can control the operations of your business, over time, the odds are you will succeed financially. Nothing has ever made me more money than owning and controlling my own business.
When I violate what I learned from my first business start up, I almost always regret it. For example, since the first venture, I have invested in five different businesses. When my share is well below 50%, I break even or lose. When I am at 50% or above, and I remain in the business over five years, I usually make strong returns.
3. Don’t take the ups and downs of the economy too seriously.
I’ve been through two market crashes and five serious recessions (1972, 1981, 1987, 1991, 2001, 2007 and 2009), and I’m still here, doing pretty well for myself. Why? The only reasons I can think of are: for the most part I have not panicked at points of crisis, and the crises that have occurred were made to appear worse than they really were.
Only once did I take my money out of the stock market because I thought a potential crash (1987) was coming and it would forever hurt me financially. The October 1987 stock market did in fact go into a free fall and the DOW lost 22.61% if its value in one day. It was called Black Monday. I anticipated this fall, took my money out and put it into cash. Good move at the moment, but terrible for the long turn. Shortly afterwards, the market went on one of the greatest bull runs in history. I missed all of that. From that point forward, I promised myself I would not repeat that mistake again. Hence, when the market sags and the economy dips, I continue investing. The results have been positive, and I expect those positive results to continue for as long as America remains with the financial model it has been working under for the last 100 years.
Fear is a basic human characteristic. If you are halfway sane, you have fears. And when you are afraid, your reactions will usually be a little bit exaggerated. Market speculators know this about us and take advantage of it in order to make money off of you and me. For example, when the stock market is correcting, market speculators will exaggerate its seriousness and suggest that you sell your stocks as the market is heading downward. History has taught speculators that when you are fearful about your investments you will magnify its gravity and almost always sell at the bottom of the market. They then will come in and buy your stock at a discounted price. End result? They win, you lose. Why? Eventually, the market always comes back and reaches for new highs!
As far as investments are concerned panicking is counterproductive, and any fears you may have are probably magnified and are being taken advantage of by others. Lesson learned: patient money almost always wins as the market forever gyrates up and down, but over time forever bends slightly upward.