This market reminds me of an old friend who had the unfortunate tendency to obsess over details. Hyper-focused on the Fed’s every word, investors are driving this market batty, parsing and splitting each piece of economic data, each Fed governor’s statement into smaller and ostensibly more consumable bits only to spew them out the following day. Up one session. Down the next. Manic, euphoric and very hard to live with.
So what is an investor to do?
Some are pulling money out of stock funds — to the tune of $16.2 billion last week alone and, according to Merrill Lynch, $46 billion over the last month. Sentiment, measured by various organizations, indicates investors are more bearish than bullish for the first time since the fall of 2011.
The experts are divided, too. According to Barron’s, about half of the 78 economists surveyed by Bloomberg predicted the Fed will lift rates, although traders in Fed-funds futures are much less certain, with about 28 percent expecting an increase. If the experts can’t agree, the rest of us have no chance.
Let’s consider a few facts. Click here for more: The Arizona Republic
For Benjamin Graham, the greatest risk facing an investor is not the market, but short-term, emotional reactions to stocks. Nancy Tengler discusses the importance of emotional discipline.
Successful investors are students of history. Just as philosopher George Satayana famously declared: “Those who do not remember the past are condemned to repeat it,” so it is also true: Investors who do not study the historical performance of stocks are doomed to make costly mistakes.
No one understood that point as clearly as Benjamin Graham, author of “The Intelligent Investor.” And no one has articulated it so well. According to Graham, intelligent investing requires an informed (though not necessarily exhaustive) understanding of the companies we are buying. He does not argue that individuals must be endowed with superior intelligence; rather, they must possess the discipline to exercise “firmness in the application of relatively simple principles of sound procedure.”
For Graham, the greatest risk facing the individual investor is not the market but our short-term reaction (often emotional) to stocks. We sometimes find ourselves “beset with confusions and temptation… frequently unconscious toward speculation, toward making money quickly and excitedly, toward participating in the moods … of the crowd.” In other words, Graham warns us to be wary of our natural proclivity to desire instant success. Gambling, lotteries and speculative trading appeal to the eternal hope etched on our imagination; the hope we just might win, we just might get rich quick.
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When Benjamin Franklin said, “An investment in knowledge pays the best interest,” he may have been anticipating the low to zero interest rates savers and investors have been contending with for years.
Now it seems that rates have finally begun to rise, and contrary to conventional wisdom, that won’t necessarily be bad news for stocks.
Since the end of January, the S&P 500 has returned a positive 7.1 percent, while the price of bonds has declined and the 10-year Treasury yield has risen 0.6 percent. Investors have been busy selling bonds in anticipation of the inevitable (and much-anticipated) hike by the Federal Reserve Board while economists and pundits handicap the date of the upcoming rate increase. June? September? 2016?
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