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Five Investment Principles To Remember Now

by: Felix Salmon October 07, 2008    
Felix Salmon

Felix Salmon

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1. There's no rush. If an asset is cheap today, it'll be cheap tomorrow. Think before you act.

2. If an investment causes worry or stress, don't make that investment. You should be happy with your investments. Your gut is a good barometer of your risk appetite.

3. There's no need to invest. If you don't want to take a certain risk, don't take it.

4. Up markets generally last for a very long time. Down markets can last just as long.

5. There are few things more valuable, in a liquidity-constrained down market, than dry powder. Consider the opportunity cost of investing now. Down markets afford you the luxury of being patient, and waiting for opportunities which you love.

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This article has 7 comments:

  •  
    Oct 07 08:13 AM
    "If an investment causes worry or stress, don't make that investment. You should be happy with your investments."

    In his autobiography, Jesse Livermore described how, before taking a position in a stock, he would take one or two small positions on the opposite side of the trade, to see how he felt about it. I guess this was his way of testing his gut.
    Reply
  •  
    Oct 07 08:30 AM
    Stupendously dumb advice, exactly the opposite of what the times demand. No one can call the turns. Anyone can call the levels. Yes you need to invest, because most of your consumption will occur in the future, not now. The only questions are in what and when. You know cash won't pay anything real, long term. It has defensive uses but only defensive uses and doesn't even count as investing.

    The right formula is dirt simple, it just takes discipline to execute. It is to dollar cost average through thick and thin, diversified. And to lean *against* the headlines and the swings, at the margin. That formula is guaranteed a better than average price over the long term, for everything bought. Nothing else is.
    Reply
  •  
    Oct 07 08:31 AM
    My response to your five suggestions.

    1. If not now, then when? Don't assume you can always get in if you have a personal setback or sink your money into an alpaca farm and you can't get it out.
    2. Life is struggle. If you are stressed, get on medication or do yoga. But don't stuff money under the mattress.
    3. You don't need to invest if your son invented Facebook or you own a winning lottery ticket. If you think Social Security, your family members and whatever you find in the ashtray of your 79 Caddy will make you through the period between 65 and 95, by all means, stay out of the market.
    4. Market imbalances and imperfections always leave room for profit in bear markets on the short, medium and long term horizon.
    5. Money is like seeds. You can eat them, plant them, or store them. Every farm will have two droughts out of ten planting seasons. Yet agriculture continues. Tis better to have loved and lost, than not to have loved at all.

    But the most compelling argument for investing in the stock market is this. You can transfer all of your money into a lump of gold, bury it, dig it up under the moonlight and stare at it before reburying it. But it will not protect you against the ravages of inflation. Do you surrender or do you say to yourself: Gently not shall I go into that good night!

    Tis better to have loved and lost than to never have loved at all. Or as Chris Rock put it, don't be the old guy in the nightclub.
    Reply
  •  
    Oct 07 12:16 PM
    During recessions cash has outperformed every other investment class. If you didn't see this coming maybe investments aren't for you. Being short is also a difficult exercise when you have the government intervening the markets. So if you can get 4% out of your savings account you'll be great condition to invest when this turns in a year or so. Just do the math, or look at the charts. The myth that the stock market always goes up (even in the long term) is starting to get debunked. If you indexed yourself in 2000 you would have negative returns today. If you want to go long, wait until the market turns. If you are out you'll only miss out on the opportunity, your capital will be intact.
    Having said that, buy gold.
    Reply
  •  
    Oct 08 08:22 AM
    This ia good advice for most people, if you have the nerve to buy now, go ahead, but there is nothing wrong with being cautious and looking for opportunities. There is no hurry to be the first in a leaking life boat.
    Reply
  •  
    Oct 08 09:16 AM
    Everyone who invests or trades should read every one of the comments here. All good advice, even if conflicting and inconsistent advice - that's the way it is in the markets also.
    Reply
  •  
    Oct 08 05:25 PM
    Felix could have stopped after his first sentence - "There's no rush." But then he wouldn't have had much of an article.
    Reply
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