Streetwise for Friday, December 15, 2017

Invariably, this is the time of the year I am asked to critique why an investment strategy did not meet expectations, given the richness of today’s stock market. Usually the reason is a lack of adherence to one or more of the basic tenets of investing. Although I have discussed many of them in the past, here is a summary.

Investing is like no other field of human endeavor. Opinions and prejudice run rampant. Advice is bountiful to the extreme. Free advice is often worth what you pay for it. Unfortunately, the advice you pay for could cost you dearly.

Pundits and their publishers work overtime to supply investors with every conceivable type of stock service, letter, bulletin, list, and update. Sporting such tempting titles as “Stocks to Buy in Today’s Market,” or “Ten Mutual Funds That Can Not Lose,” much of what is printed purports to have divined the inner most secrets of Wall Street.

Throughout history, survival of the glibbest has often been the rule. Self-proclaimed soothsayers continue to feed upon the human emotions of fear and greed. Remember, advice that sounds too good to be true, usually is. Lessons you learn because of ignorance are guaranteed to be expensive ones.

The securities industry is one of the most strictly regulated of all commercial activities. Yet, most investors, both novice and experienced, often believe that they have somehow been caught up in a game with changing rules and capricious odds. And they are not completely wrong.

So how do you level the playing field? Start by accepting as an inviolate truth that trying to predict the future course of the stock market short-term or long-term is an exercise in futility. You forecast individual corporate performance, not that of the stock market.

Ignore the prognosticators and instead concentrate your efforts on analyzing individual corporations with a cold eye and no emotion. One of the greatest follies of investors is that they become emotionally attached to one or more stocks.

I have never met a stock that either knew, or cared, who its owner was. A stock does not perform better if it is loved, or perform worse if it is scorned.

Often an investor will say, “I have held that stock for years. I love that stock. I will never sell that stock.” If you mean you do not want to pay the taxes on your capital gains, I can accept that. Otherwise, “never” is a very long time to wait and is usually unprofitable.

Well-chosen investments can successfully weather short-term cycles in both the stock market and the economy. If you had enough vision to see the value in a company, then have the endurance and courage to ride through short-term aberrations and vindicate your judgement. Remember, vision and patience are two sides of the same coin.

Often investors are afraid the stock market will correct, a Wall Street euphemism for crash, and they will hear that infamous “sucking sound,” as they watch their hard-earned savings disappear. Losing your all savings via a diversified portfolio of quality stocks would be close to impossible.

At the same time, everyone wants overnight investment success…with little or no risk. If it happens, the credit belongs to Lady Luck. She is always welcome, but to expect her is sheer folly.

Yet, greed can be an overwhelming force. Your objective should never be to beat the market. Instead, decide what resources you can comfortably commit at what risk level; then select a realistic time frame against which to measure your performance.

Note to Readers: I will be teaching one course, Advanced Investment Analysis, beginning on Monday, January 8, for the Ringling College’s Lifelong Learning Academy. Call 941-309-5111 for registration and information.

My 8th annual talk sponsored by the non-profit American Association of Individual Investors (AAII), titled: Wall Street 2018 – Where Do We Go Now?”, will be on Thursday, January 18, at the Hyatt Regency, 1000 Blvd. of the Arts. Registration/Social/Refreshments 3:00 P.M., Program 4:00 to 5:30. Please call 941-706-3449 to register. $10 per person at the door.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to