When Price Doesn't Matter

I occasionally view things differently than my wife, for which I take full responsibility and repent the error of my ways.  For example, I do not fully appreciate a good bargain.  When my wife buys an item for $50 that was originally $300, I do not share her enthusiasm, although I express my pleasure at her good fortune.  To me, either the item was worth $50 or it wasn't -- it's previous price is irrelevant.

With investments, the purchase price can get in your way of clear analysis.  Let's say you bought the XYZ stock a few months ago for $100 per share and it now trades at $70.  Should you sell it?  Well, there are numerous factors that go into such a decision.  Does it make a difference that you bought the stock for $100 per share?  Absolutely not!

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On the Sexual Revolution and the Decline of the West

When did the sexual revolution begin?  A recent book describes Wilhelm Reich, a student of Sigmund Freud, as the father of the sexual revolution in the 1920's. Another new book claims that the sexual revolution commenced in the1860's in England during the stuffy Victorian era.  Of course, both of these arguments fail to give any credence to the antics of the Hell-Fire Club in London during the late 1700's. 

Ariel Levy writes in The New Yorker how each generation views themselves as having stumbled upon something new.  Such an approach often arises from the conceit of youth -- they are unaware of what preceded them; instead, they focus on how they are breaking free from the social constraints of the day.

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Fun with Diversification

We learn at an early age not to put all our eggs into one basket (although few of us walk around with a basket of eggs). An obvious application of this saying involves investing. We know that sometimes a particular asset class is in favor, while at other times it can get a bit ugly. So it makes sense to expose yourself to a diversified group of asset classes to insure a smoother ride.

The topic of diversification can lead us to many interesting and complex areas, but let's focus on a simple comparison of large cap U.S. stocks (S&P 500) and several foreign stock indices -- broad-based (MSCI EAFE), general emerging markets (MSCI Em Mkts) and the flavor-of-the-month, Brazil, Russia, India, and China (MSCI BRIC).

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The Economy Doesn't Matter

The stock market appears to ebb and flow with the daily news about our fragile economy.  Clearly, the health of our economy greatly affects our lives; yet, counter-intuitively, it has less to do with stock performance than you may think.  "Economic statistics have little if any value in forecasting or modeling stock prices," according to the folks who run the Marketfield mutual fund.

Financial Advisor magazine notes that the recent volatility in the stock market has led some investors to search for economic trends and cycles in an effort to predict how the stock market will perform.  After all, as Morgan Stanley points out, "equities are growth assets, so it seems obvious that equity returns should be linked to GDP [gross domestic product] growth."

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The Pain of Patience

One of the most difficult times in investing is when a rational, long-term, diversified portfolio becomes blindsided by the heart-stopping emotions of a steep market decline.  As you watch the stock market drift ever lower, your primal instinct is to flee the apparent danger (although our pre-historic predecessors feared dinosaurs and not the news on CNBC).  Doing nothing is not particularly satisfying. 

Hopefully, you have planned ahead for just such an occasion.  Any money you need in the next year should be in cash, not subject to the vagaries of the stock market.  The rest of your portfolio should be diversified among various asset classes commensurate with your goals and risk tolerance. 

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