A Gigantic Casino?

 A Winning Hand

Some people think of the stock market as a gigantic casino and worry about getting ripped off. Part of the reason is that they act as if it is a casino. In the short term, the stock market goes up and down a lot, often for no apparent reason. Over the long term, the market moves with the economy and is much more stable, particularly if your portfolio is widely diversified. If you hold one stock or a handful of stocks or trade a lot, you are taking big bets. If you spread the risk among thousands of companies around the world, the risk of an unfavorable outcome drops dramatically. One of the biggest mistakes people make is trading in and out of the market based on today’s headlines. If you trade aggressively or if you hold only a few stocks, you may win big. A lottery ticket will also pay off for someone. But do you really want to trust your future to a game of chance with slim odds? Why not use a thoughtfully designed portfolio instead? Skip the casino with your investments and the chances of a winning hand will be much better.

Just Sit There

A Zebra in Lion Country

Little captures the American spirit better than Nike’s “Just Do It” slogan. Americans like to be positive and to take action. They are not good at being patient.  Many investors aren’t patient when the news is horrible and there seems to be no hope. The debate over the U.S. budget deficit has shaken confidence around the world.  But we know from experience that the economy goes up and down. We have good times for years with plentiful jobs and markets surge. Then everything falls apart and there is no light at the end of the tunnel.  Over the last century recessions have generally lasted less than a year and often are followed by a steep market recovery. Trying to time that surge is a losing battle. In the book “A Zebra in Lion Country,” Ralph Wanger describes trading frenetically during the stock market crash of 1987.  At the end of the week he stepped back and found that he’d accomplished nothing. Pushing the panic button may bring relief but it’s no substitute for careful thought and a well designed portfolio.  “Just Sit There” sounds terrible but it’s saved many investors and eventually the turbulence will pass.