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. 

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