Posts

BIGG Success Logo boxed

Mania in the Market and Rising Above the Crowd

buy_sell If you listen to our leaders, be they in business or government, it seems there’s a competition to frame our financial situation in the direst terms. Our media hypes the times so that we stay tuned in. We hear terms like meltdown, nose-dive, crash, collapse, and Great Depression.

___

___

We found a great white paper by Marvin Bolt of Alpha Plus Advisors [PDF]. It’s well worth your time to read the full paper to understand historical mutual fund flows and market performance.

Specifically, he looks specifically at what individual investors did with their money during four recent periods:

Stock market crash

In the first quarter of 1987, individual investors placed a then-record amount into the market as stock prices rose. Of course, in October of that year, the stock market crashed. Individual investors responded by withdrawing record amounts of money as the market hit a low we haven’t seen since.

Gulf War & recession

In the second quarter of 1990, there was a huge inflow of funds as the market hit its high for the period. By the third quarter, investors were pulling money out just as the market hit another low point.

Dot.com bubble and 9/11

At the height of the dot.com bubble, investors poured a new record amount of money into the market in the first quarter of 2000. The S&P 500 hit a high in that same quarter. Things soon changed as the market began falling, reaching a low in the third quarter of 2002, just when individual investors were withdrawing record amounts of money.

Housing bubble & mortgage crisis
The market hit its high in 2007 as investors poured money in again amidst the euphoria. While all the data is not yet in, it appears that in October of this year, a new record amount of money was pulled out of the stock market.

Rising above the crowd
We want to buy low and sell high. History shows that the crowds tend to do the opposite – they buy high and sell low. They invest heavily during the bubble and get out during what we’ll call the crater.

Think about what’s happening right now. Stock prices have been falling. But for every seller, there has to be a buyer! Who’s buying and who’s selling? Morningstar has a great video that’s well worth your time to gain the proper perspective on this crucial point.

To rise above the crowd, you can’t think like the crowd. You have to do the opposite.

So take a deep breath. If you don’t need the money for five to seven years, the odds are heavily in your favor. If you need the money sooner than that, stocks probably aren’t the best investment for that money. Because we’ve relearned just how risky stocks can be in the short-run.

Educate yourself to maintain the proper perspective.
We can’t count on our media or our leaders to do this for us. Knight Kiplinger wrote a fantastic piece explaining all of the differences between today’s situation and the Great Depression. We highly recommend that you read this article to see why he thinks we’re not ready to jump over the cliff.

Market timing is a risky game. Since the crowd tends to get it wrong, perhaps the best way to get it right is to keep investing through the whole cycle. You’ll buy fewer shares when the market is up. You’ll get some great deals when the market is down like it is now. Over time, you’ll end up with a decent return.

Thanks so much for reading our post today. Join us next time as we discuss overcoming guilt about how you choose to spend your time. Until then, here’s to your bigg success!

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00271-112408.mp3

 

(Image by svilen001)

BIGG Success Logo boxed

When It Comes to Investing, Time is on Your Side

time_money On Tuesdays, we usually talk about time issues – time management, productivity and getting things done. But today, with the volatility of the stock market, we thought we’d take a look at how time affects your investments.

___

___

It took many years to create a portfolio of value. It’s been frustrating to see that value fall so quickly. But we’re reminded of a Gordon Gekko quote from the movie Wall Street:

“Don’t get emotional about stocks. It clouds the judgment.”       

Yet that’s exactly what we tend to do. We get emotional and do the opposite of what we should do. We should buy low and sell high. We buy high on exuberance and sell low in a panic.

The smart money does just the opposite. It buys low in the panic and sells high on exuberance.

A look back at the Dow

We ran some calculations to see if there is a benefit to buying and holding for a period of time. We specifically looked at the Dow Jones Industrial Average because it’s the basket of stocks with the longest history.

Going all the way back to 1896, we assumed we bought the Dow on the last day of every year right before the close. We looked at every period up to December 31, 2007. Then we looked at holding periods of:

  • 1 year
  • 2 years
  • 3 years
  • 5 years
  • 10 years

We looked at two specific things for each holding period: our return and our chance of losing money.

Risk and return results

We found that the longer we held the Dow stocks, the better our return with one exception – the average 3-year return was lower than the average 2-year return.

Even more interesting, we found that the longer we held, the less likely we were to lose money:

  • In one year increments, we had a one in three chance of losing money.
  • Over five year time frames, we had a one in four chance of a decline in the value.
  • Of the ten year periods, we only lost money in one out of five cases.

Then we looked a little deeper – to the size of the volatility. The range of highs and lows went down over time, so the downside was as follows:

  • About 14% for the 1-year increments
  • About 2.75% if we invest over 5-years
  • 0.55% for the 10-year ranges

So based on these historical numbers, the longer you hold your portfolio, the less likely you are to lose money and, if you do, the less you are likely to lose.

Just remember – the past doesn’t necessarily predict the future. However, it’s not unreasonable to use it as a guide.

Beyond the Dow

You’ll most likely invest in a bigger basket than the Dow. You’ll also probably want to invest in more than just U.S. stocks. You’ll also almost certainly invest in bonds and other assets. As a general rule, the more diversified you are, the more likely longer time periods will work in your favor – even beyond what we’ve shown here.

You, CIO

Here’s something we can’t possibly emphasize enough – no one will look after your money like you will. You are the Chief Investment Officer for you and your family. So it’s important to understand investing basics.

DIY doesn’t work

Having said that, do-it-yourself investing doesn’t work well for most of us. So plan to outsource and inspect. Your most critical decision, then, is the hiring decision. You’re not trying to figure out specific stocks to buy, how to allocate your assets among stocks, and those kinds of decisions.

Turning to professionals

With full knowledge of investing basics, you’re ready to work with a certified financial planner to help you plan your retirement portfolio. You’re also ready to invest in mutual funds with proven managers.

Time is money in the bank

As we saw with the Dow, time is money in your account. So keep investing – month after month or paycheck after paycheck. In times like these, you’ll get a sweet deal. The smart money is getting it too! You’re buying low so you can sell high later.

That puts time on your side!

___

Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

___

 

Related posts

1297]

154]

(Image by vuk011)

BIGG Success Logo boxed

The Fastest Way to Learn (Re-learn)

By Bigg Success Staff
06-05-08

Leading-Edge Application

cliffs_notes

You may be surprised at this week’s feature. This is a leading-edge application that’s been around for a long time.

Do you remember CliffsNotes

It’s what students would use who hadn’t actually studied the material. But CliffsNotes would save the day!

Some people thought it was cheating. For others, it was a life saver!

Now CliffsNotes is available online. For FREE.

And if you visit their site, you’ll realize that it’s a great way to refresh your memory quickly. For example, you can do a quick review of history. It’s all right there on the CliffsNotes site.

So the next time you have a little down time, bone up on some useful trivia quickly. Go to CliffsNotes!

More Leading-Edge Applications

810]

640]

609]

502]

411]

BIGG Success Logo boxed

The One Ingredient That Guarantees Your Success

Successful people are a diverse group. Some are outgoing while others are extroverts. You have creative types and analytical people. They do however share a few commonalities.

One of those was displayed by Thomas Edison. The great inventor obtained over 1,000 patents in his lifetime. But did you know that it took Edison about 10,000 tries to finally invent the light bulb? If at first you don’t succeed, try 10,000 times again!

The one must-have ingredient to succeed is persistence!

History is ripe with example of people whose greatest success came after their biggest failure. So today we’ll discuss three persistence principles – things you can do to keep on keeping on.

#1 – Believe in yourself and your idea.
You need to almost be stubborn about it. Have faith – not a blind faith, but a “calculated faith”. We often think of “calculated risk” – this is similar. You have insight that others may not.

You’ve done your research. You may have a unique perspective based on your education and experiences. You have confidence in your plan. Trust your instincts and push on!

#2 – Keep your spirit up.
There are a number of ways to do this; find those that work for you. You may read success stories. Or keep your batteries charged by hanging out with positive people. Get a good night’s sleep … or take a nap. Get some exercise. Whatever it is, plan some time daily to keep your flame burning so you can keep pushing, no matter what obstacles come your way!

#3 – Welcome failure.
Imagine if Edison had quit after two tries, or 5,000 … or just one time short of his great invention? Learn to recognize failure for what it is – progress toward success.

Take the example of great sales people. The numbers are different for different industries, but think of this example – a sales person knows that he has to make ten calls to get two appointments. He has to have two appointments to make a sale. He fails ninety percent of the time. But here’s what he knows …

The sooner he gets through those nine failures, the sooner he succeeds!

Here’s a story that illustrates the importance of persistence. It comes from Think and Grow Rich, the great book by Napoleon Hill.

During the days of the gold rush, a young man went west to find his fortune. He staked a claim and went to work. A few weeks later, after much work with no reward, he discovered gold!

He quickly raised the money to buy the equipment he needed to mine the gold. He started drilling, but then the vein disappeared. He kept drilling, but to no avail. In desperation, he quit and went home a poor man.

Some time later, it was discovered that he had stopped just three short feet of one of the richest deposits of gold in the United States.

Don’t stop three feet from success – be persistent!

What do you do to keep going? We’d love to hear from you!
Leave us a comment below…

Our Bigg Quote today is by the great author and speaker Brian Tracy:

“Remember you only have to succeed the last time.”

Here are two things to add to your list of things that are certain –
(1) you will face obstacles on the way to success, and
(2) you will succeed bigg if you persist.

Next time, with all this talk of persisting, we thought we’d throw a curve ball your way – we’re going to talk about when to quit. What are the signs that it’s time to move on?

Until then, here’s to your bigg success!