Streetwise for Friday, December 7, 2018

This is the time of the year I am invariably asked to critique why a particular investment strategy did not meet expectations, given the richness of today’s stock market, albeit with some extreme volatility. 

Usually the reason is a lack of adherence to one or more of the basic tenets of investing. Although I have discussed these canons many times in the past, here is a brief 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 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 is an exercise in futility. You forecast corporate performance, not that of the stock market.

Ignore the prognosticators and concentrate your efforts on analyzing corporate performance sans emotion. One of the greatest follies of investors is that they become ardently attached to one or more stocks. 

I have never met a stock that either knew or cared who owned it. 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 incur the prevalent tax on your capital gains, I accept that. Otherwise, “never” is a very long and usually unprofitable timeframe.

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

Increasingly, investors are becoming terrified of a market correction, a Wall Street euphemism for crash, and they will hear that infamous “sucking sound,” as they watch their hard-earned savings disappear. The truth is that losing your all savings via a diversified portfolio of quality stocks has an almost negligible probability.

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 is often an overwhelming force. Your objective should never be to “beat the market.” Instead, decide what resources you can comfortably commit at what risk level, utilizing a realistic time frame against which to measure your performance. 

Note to Readers – Save the Date: I will be teaching Advanced Investment Analysis, starting Monday, January 14, for the Ringling’s Osher Lifelong Learning Institute. Call 941-309-5111 for registration and information.

My 9th annual talk sponsored by the non-profit American Association of Individual Investors (AAII), titled: “Tactics for Tough Times – Deciphering Wall Street in 2019”, will be on Thursday, January 24, at the Hyatt Regency, 1000 Blvd. of the Arts. Registration/Social/Refreshments 3:30 P.M., Program 4:00 to 5:30, Q&A 5:30. Please call 941-706-3449 to register. $15 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