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Preparing for a Complete Meltdown
Posted in Current Events, Investing, Money Management, Personal Finance
Tagged business, economy, money, personal finance
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How to Invest for US Default
National Debt Clock, in Manhattan, New York City
I’ve heard the question several times now; How to invest for the US default on August 2?
Whether or not the US cannot raise the debt cieling and defaults isn’t the right question. As James Kostohyrz (Miyanville.com) asks, “Given the risks involved, do you really need to be invested right now?”
His conclusion?
You don’t have to…
In one sense, I agree. Unless you are protected for all outcomes, sitting on the sidelines is the safest bet. As James mentions, the opportunity costs are really low, with regard to being out of the market in the near term.
That said, I do not think that it is wise to sell every investment you’ve made. For example, lets think about retirement accounts (i.e. 401k, 403b, IRAs, etc.). For my retirement accounts, I use a set of rules that tolerate larger price movements, because the accounts are a long-term investment. I am not doing anything special because of the upcoming default, because it is a short-term event.
That said, I will still obey my rules; the outcome of the US Debt “crisis” won’t directly influence my actions. The same holds true for my short-term holdings. My rules dictate my actions…I will just watch them a little more closely than normal.
Sources:
How to Play the Risk of US Debt Default
Minyanville – James Kostohyrz
http://www.minyanville.com/businessmarkets/articles/sotck-market-economy-macroeconomics-debt-ceiling/7/27/2011/id/35962
Posted in Current Events, Investing
Tagged IRA, personal investing strategies, rules for investing
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We Are Traders
The following is a recent commercial for OpenTrader…pretty slick actually (and check out the book selection at 0:30).
Sounds great, doesn’t it? Sitting around in shorts and t-shirt, making million dollar deals with from the comfort of your desk chair.
If only it were that easy. Not only do individual traders have to deal with a lack of information (compared to traders on the trading floors), we have almost no clue when it comes to the “grey areas” of the market. Don’t believe it? There’s no way? Check out this little gem from The Street:
http://www.thestreet.com/video/cramermarketupdates/10329438.html
And even if we did have perfect knowledge, think about this: The average volume of Ford shares traded over the past 50 days is 59 million. In dollar terms (with Ford shares between $16 and $12 per share), that is the equivalent of $708 million dollars traded EVERY DAY! I don’t know about you, but that isn’t exactly pocket change. With the increased use of techniques such as high frequency trading (basically executing huge trades in the span of a few milliseconds for a few tenths of a cent), “trading” for a living has become that much more difficult for the individual investor.
Hard work and dedication are usually concepts that people don’t associate with investing. The common misconception is that you can easily trade your way into vast wealth. Barry Ritholtz shares a similar opinion on his blog (The Big Picture), in a post entitled “How Hard is it to Become the Michael Jordan of Trading?”
the true criticism of trading [is]…that the odds are very much stacked against you. The truth is it is really, really hard to do professionally.
Some people associate trading with gambling. And in one sense, there are some similarities, such as the statement, “the house always wins”. In investing, the house is your investment broker. A broker will always get commissions from you, win or lose. But gambling is not an investing strategy…it isn’t even speculation. It is an activity that someone does for entertainment. Back to Mr. Ritholtz:
…for newbie traders, a better analogy than a casino is the possibility becoming a professional athlete. Both require a combination of natural skills, discipline, and very hard work.
So what can you do? Get real.
If you truly want to trade for a living, find someone else who has been doing it for a long time and emulate them. Odds are very good that they will have a system or set of rules that they follow without fail. Your level of commitment, understanding, capital, and luck will ultimately determine your success.
Quote of the Day – Doug Kass
“Price is what you pay, value is what you get..”
– Fund Manager Doug Kass
Learning How to Invest the Right Way
Learning how to invest is not just about buying and selling stocks. On my website, I mention several times that investing is an entire process, with trading (i.e. buying and selling) just one small piece.
To that end, I laid out a potential process for you. From stabilizing your personal financial situation, all the way to make adjustments. And it is that last step (making adjustments) that is the hardest for most investors.
Why? Aside from the fact that most people don’t follow a process, making adjustments means that you made some mistakes.
That is why I love the following article (and others just like it). The author (Peter Brandt) does a great job of asking and answering questions in an attempt to evaluate his investing/trading performance.
1. Has my trading plan/guidelines/rules been out of synch with the markets?
2. Has the basic behavior of the markets changed?
3. Has my trading execution been out of synch with the plan?
Personally, I would not ask the same questions as Mr. Brandt (I am not too interested in the why behind market shift – only that they are shifting). Nevertheless, the exercise is still valid, and one that all of us should do more often.
Sources:
How to Start Investing Safely
Invest-Safely
http://www.invest-safely.com/how-to-start-investing.html
Lessons from a difficult year of trading
peterlbrandt.com
Posted in Investing, Other Blogs, Personal Finance
Tagged how to invest, investing process, personal investing strategies, rules for investing
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Investing after QE2
Great article on investing after QE2 (or trading for that matter), posted to http://www.ritholtz.com by the Global Macro Monitor.
Unless credit markets begin to recover in a significant way, the source of new liquidity to drive major markets is in question, in our opinion. Flows into one market — whether it be equities, bonds, commodities, or foreign assets — will likely be at the expense at another and follow a zero-sum game.
As always, be prepared for changes in market direction by having a plan for your long term investing success.
Posted in Current Events
Tagged Bailouts, Federal Reserve, fixed income, interest rates
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Goal Setting Template
A goal setting template can be a great help to people just starting out. Maybe you’re stuck in a rut, and want to try something new. Maybe you’ve set goals and resolutions in the past, and only come up disappointed. This is especially true when it comes to personal finance; money is the way that the world measures success (right or wrong).
With regard to investing goals, when you aren’t specific about the kind of results you want, then any strategy will work. To help you in your quest for a better financial future, I’ve created a goal setting template, based on the practice of SMART goals. Best of all, it is FREE!
The Safe Investing Blog 