I heard this expression just the other day. It describes the behavior suggested by many stock brokers to their clients. They frequently tell their clients that they shouldn’t panic just because the market has experienced a significant drop. Their reassurance is that the long term market averages are high.
What’s wrong with this strategy? The S&P 500 was at 1282.71 on July 1, 1999. It’s been a roller coaster ride ever since. So if you were 55 years old back then and your broker said stick with your plan and you will be far better off in 2009, you just might hate that broker.
The problem is most people don’t want to take responsibility for their own future. The brokers did not know what would happen but they did know that a loss of clients would not be good for their bottom line. So the “buy and hold” idea was born. It really was a “buy and hope” plan. If you didn’t learn anything from the tech bubble of 2000 then maybe you deserve this result.
My philosophy is trust no broker. Research every buy before it is completed. Watch your stocks and bonds carefully. Do not follow the crowd thinking about what constitutes a “bear market.” It’s your money and you cannot re-save it easily. If you have the suspicion the market is heading down; sell while the market is high. Put those sold dollars into a savings account and re-buy when you are convinced the market is near it’s bottom. You may not time it precisely but you can most certainly do at least as well as the brokers.
At least once a year UCLA Anderson Business and the Los Angeles Economic Development Corporation provide their forecasts for Southern California. Those mainstream predictions never provide any worth while insights on things that could significantly impact business in either a positive or negative way. They may be great for economic students to develop their skills but have no useful purpose.
The guests appearing on CNBC and Fox Business Channel are all qualified individuals but their take on the current situation or their forecasts are too vague in detail. They might be valid but how many of us will do the homework on those individuals? I listen in to learn about the economist who did not follow the pack.
As to our federal government financial leaders, well look at the recession we are now experiencing. Where was Henry Paulson, Ben Bernanke, Larry Summers, or Timothy Geithner? None were visible until after the economic collapse.
I am listening and watching for the individuals who do not run with the herd. That has brought me to Nouriel Roubini, an economics professor at New York University, who stood before an audience of economists, in 2006, at the International Monetary Fund and announced that a crisis was brewing. It was reported in the New York Times Magazine in August of 2008. The article is titled Dr. Doom. Nouriel Roubini has predicted that the recession will be over this year. Correction: Roubini says at the end of the year.
Of course this was unknown to me and even if I was a subscriber of the New York Times would I have understood the significance of the presentation? Probably not.
My solution? You can’t read too much.
Coast Contact 