When times are tough, turn to the seasoned pros for advice
Mark Twain may have had it right when he defined October:
“This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”
October 2008 has gone down in the investment pantheon as one of the worst Octobers of all time. Investors are stressed over their large portfolio declines and the constant grim economic news. Some investors have sold their stock holdings or are thinking of doing so.
In times like these it pays to listen to the “old hands” - successful investors who have weathered many previous downturns and who have spent their lifetimes studying the investment markets.
Their advice is pretty similar: sit tight, maintain a diversified portfolio, and, if you have cash to spare, invest more for future gains.
John Bogle
“The probabilities for stock market investing right now are very compelling,” John Bogle, the founder of the mutual fund company Vanguard, told The New York Times recently.
Bogle, 79, helped to invent the first retail stock index mutual fund, now the Vanguard 500 Fund.
He believes that stock valuations are reasonable and that returns over the next decade may average 9 percent annually.
He cautions against trying to time the market and move in and out of stocks, calling it a fool’s errand.
He counsels holding a portfolio of stocks and bonds, and keeping it to a fixed balance. Most of all, he says investors should avoid looking at the markets and their portfolios daily.
“If you were to put your money away and not look at it for many years, until you were ready for retirement, when you finally looked at it, you’d probably faint with amazement at how much money is in there,” he said.
Warren Buffett
At last count investor Warren Buffett was America’s richest man. He built his fortunes by investing widely and cannily in stocks and companies for over 50 years.
Buffett wrote an editorial in the Times on Oct. 17. The headline was simple: “Buy American. I Am.”
Buffett said he was moving all of his personal wealth not already invested in his flagship Berkshire Hathaway from bonds to U.S. stocks.
“Equities will almost certainly outperform cash over the next decade, probably by a substantial degree,” he said.
He criticized those who have moved to cash with the idea of getting back into stocks at an appropriate time. “In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: ‘I skate to where the puck is going to be, not to where it has been,’” he wrote.
Burton Malkiel
Burton Malkiel, economics professor at Princeton whose theories led to the creation of index funds, says “a century of investment experience” shows that investors who sell stocks now “are almost always making the wrong decision.”
In a recent Wall Street Journal editorial he wrote that his research shows that investors who moved money in an out of stocks from 1995-2007 sharply underperformed the market.
“No one has consistently made money by selling America short, and I am confident the same lesson is true today,” he wrote.