There’s nothing like a deep bear market to get folks talking about a lot of financial nonsense.  The rhetoric I’m hearing these days takes me back to October of 1998 and the Long Term Capital fiasco – a hedge fund collapse that came darn close to bringing down the house of cards. 

More recently (and more importantly), a group of researchers from Dimensional Fund Advisors reviewed the performance of the S&P 500 from January 1970 to December 2006.  The annualized return for that period was 11.1%.  

But here is where things get interesting. 

When the researchers removed the 25 best performing days of the market over that 36 year period (less than one day per year), that 11.1% return dropped to 7.6%.  A HUGE difference!

So what does one learn from all this?

First, tell your friends and family to quit making short-term changes to their investment strategy based on their emotions.  They are foolish if they do.  Woe onto anyone that thinks otherwise.   

And second, ignore the headlines in the financial media and all predictions telling you about the best stocks to own.  Here is a great example why:

AIG and Merrill Lynch?  Seriously, what were these editors thinking?

It sort of reminds me of that lyric from the Beatles’ “Nowhere Man”:

He’s as blind as he can be/Just sees what he wants to see.

In any case, what you’ve witnessed in the market over the past couple of days is another classic stampede that occurs every so often.  Bottom line:  Don’t do anything with your finances you will one day regret.  Although easier said than done, I know.  

But the fact remains that throughout human history, there have been numerous financial disasters far worse than anything we are experiencing today.  Millions of people prospered shortly after those times simply by remaining diversified in the market and not following the crowd.  I cannot find a reason why you and I should not do the same.    

Stay tuned, I will do my best to help you come out on the profit end of this unique and opportunistic environment. 

Video courtesy of KETV News.

Be sure to tune in to our radio show each week for more discussion. 

Have thoughts or questions?  Leave them in the comment field below.

Related Articles:

• Stock Market Volatility & Investor Expectations
• Gut Check Time and the Transfer of Wealth
• Lessons from an Innovator in Global Investing, Sir John Templeton
• The Story On Derivatives

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Aron Huddleston talks with WOWT in Omaha about what investors should be focusing on in today’s market environment:

 Video used with permission of WOWT

Update:  The transcript to Roland’s video can be viewed by clicking the link below.

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The argument that the two parties should represent opposed ideals and policies, on, perhaps of the Right and the other of the Left, is a foolish idea acceptable only to the doctrinaire and academic thinkers.  Instead the two parties should be almost identical, so that the American people can “throw the rascals out” at any election without leading to any profound or extensive shifts in policy.

– from historian Carroll Quigley, author of Tragedy and Hope:  A History of the World in Our Time (and Bill Clinton’s mentor)

Related and Recommended Reading:

Left vs. Right:  The Illusion of Opposites by G. Edward Griffin

The below article was written by my colleague Dave Blair and published in our client newsletter this past summer.  In light of public perception, it deserves a second look:

As the markets continue to stumble along driven by fear and emotion, some people have asked if they should be getting out of the market to “protect their investment.”  Note that these are not clients asking the question, our clients already know the answer.

Short term volatility is the price we pay for long term success in building wealth.

You can see this chart in Roland’s new book, Manarin On Money.

Over time equity ownership positions have moved up and down but have always trended up.  Like a yo-yo climbing a flight of stairs.

Market timing requires two perfect decisions, whereas, staying invested in quality, professionally managed stock mutual funds requires only one decision.  Nobody makes two perfect decisions all of the time. 

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Ryan Borchers at the Creightonian writes about JobFox’s recent report of the Top 20 Most Recession-Proof Professions.  It doesn’t take a high SAT score to realize that those jobs that survive a slow economy are those where people are producing the maximum level of value.  Here are the top four professions on the list:

1. Sales Representative/Business Development
2. Software Design/Development
3. Nursing
4. Accounting & Finance Executive

My colleague Tim Bastian was interviewed for this piece.  Here is a key excerpt:

“I gotta tell you, if you’re coming out of college, and you’re thinking that ‘I’ve gotta get a recession-proof job’ and ‘I want to go work for a company that has really great benefits,’ … I’m going to probably find you really boring,” [Bastian] said.  The way to really be recession-proof is to be a person who adds a lot of value.”

There are a few tricks to adding value to a company, Bastian said, such as making yourself look good while making your boss look good, too.  Also, try to put yourself in your boss’ shoes.  Bastian said you should ask yourself, “If I own this business, what would I want me to do today?”

LESSON OF THE DAY:  Demonstrating value in any economy is king.   

If you are in the work force, here are a couple big picture action steps you should be doing to enhance the value you deliver:

- Give more of yourself.  I’ve been sharing my knowledge about investing and the wealth building process with the public for free for over 30 years now.  Doing so has created a community of clients and friends that no amount of money could buy. 

- Build a success library.  How many books have you read in the past year that will help you reach your personal and financial goals?  My guess is not enough.  Your time is precious so invest it; don’t spend it.

- Reach out to the top people in your profession and learn what they do to maximize value.  Reinventing the wheel can be done but it’s tough.  An easier path is to seek out people who are the very best at what they do.  Ask them about their successes and apply what they say to what you do.      

- And last, be patient but always hustle.  The microwave was probably the worst thing that ever happened to delayed gratification.  It provided us with one of life’s necessities – food – in a just a few seconds.  No matter what your job is, you have a personal brand.  And the development of your brand takes hard work and time. 

If you are able to put these pieces together, serious value will be generated on your part leading to serious success later on.  I promise. 

So says Russ Roberts over at Cafe Hayek regarding the Freddie-Fannie bailout:

Following its knee-jerk, free-market, Milton Friedman obsessed ideology, the Bush Administration has seized control of Fannie Mae and Freddie Mac. 

Joke.  A bad one, really.  If anything, this is just the latest evidence that it doesn’t matter who’s President.  Is there anything this administration has done lately that reflects a free market philosophy?  Yet because the administration sometimes uses the rhetoric of economic freedom, it allows people to paint the administration’s policies as market-oriented. 

Another thought: 

One of the most depressing things about the current situation is that people will try and find different ways to “fix” the mortgage market when it was the very attempt to “fix” it that brought us to where we are today.  The government should get out of the mortgage market.  Let individual institutions arise that intermediate between home owners and sellers.  Let those that do it well thrive.  Let those that do it badly bear the costs and disappear.

It reminds me of social security.  We don’t have a retirement crisis.  We have a social security crisis.  We have a problem created by a set of government institutions.

Here’s My Take:  This mess has to be cleaned out.  Unfortunately it will take government to remedy the current disaster since government was instrumental in its creation.  When the dust settles, I agree that Freddie and Fannie should be chopped up and privatized.

Staying on the theme of political skepticism, how about implementing privatized retirement accounts?  Allowing Washington to manage the financial security of retirees is a path to financial ruin.  Just look at the recent study by the Consumer Bankruptcy Project showing that bankruptcies among Americans 75 and older have more than quadrupled since 1991.

You’ve heard me go on ad nauseam about real world financial safety but this is just another demonstration of the fact that investing in Washington policies never leads to prosperity for you.

Lots of silly arguments on the economy are being made from both sides of the political aisle.  Here are some (slightly altered) paragraphs from an article I wrote last January to clarify the conventional thinking: 

The infusion of what is called “loose money” is always a stimulating consequence for the economy in the short term.  The analogy I often use is pumping oxygenated blood into your body.

The downside to the Federal Reserve’s ability to create money out of nothing does cause malinvestment of capital as we’ve witnessed with the housing and banking fallouts.

Long term, creating money without limit always leads to increased prices and less buying power, which is a problem for people with the bulk of their financial assets in bonds, bank CDs, and other dollar-denominated investments.

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