Who Wins.

Panic has set in. Congress has decided not to bail out the financial institutions, while I totally agree that this is what should happen. Free enterprise rewards well managed companies and punishes poorly managed enterprises. To intervene in the system is a form of socialism. However,in this case the entire American public would suffer for the ills of a few. I believe Congress will eventually do the sensible thing and install some sort of bail out. Those responsible must be held accountable. We as investors must NOT panic in times like these. All successful investors have developed a plan and follow it, particularly in down markets. We have been through numerous ordeals like this in the past and the American people have prevailed each time. This time will be no different. Investors who stay the course will be rewarded in the long term. When investors begin selling out and then buying back in at a later time actually empowers Wall Street. Wall Street makes money on every trade, whether its selling or buying. They have actually convinced the investing public that trading in and out is the way to success. This could not be further from the truth. Believe in yourself, remain disciplined and trust the free enterprise system. Truly successful investors are buying now. Case in point, Warren Buffets $5 billion investment in Goldman Sachs. Mr Buffest has a system and a plan, which he diligently adheres to. One example is 1999 when the tech stocks were going thru the roof, earning 70, 80, 100% and more Mr Buffets investments lost 15%. However, in the long run his strategy has been successful. Don't Panic...stay diversified...stay invested. Don't empower Wall Street.

"Diversification Is Your Buddy!"

Given the events of the past few months, many investors are considering moving their money out of the stock market. Since no one can predict the future, this is a huge mistake. You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong in the long run. One may get 'lucky' but no one can consistently market time. In markets like these diversification is your buddy. Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don't do the same thing at the same time. Most investors are narrowly diversified into top performing funds or classes of the last five to ten years. They often feel diversified but aren't. To be diversified means including classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors' or friends'. Those of you which are my clients own portfolios which are professionally diversified and rebalanced much like the large pension funds. Over time these porfolios will help you successfully accomplish your investment goals.

Comparison to Others.

Comparison to others is at the root of out discontent. Psychologists Kahnman and Tversky showed that more people would prefer to make $70,000 per year when others were making $60,000 than to amke $80,000, when others were making $90,000. There will always be "others" with more assets, money, or larger portfolios. We are doomed to disappointment because comparison destroys the joy of having and using what we already have. Most people would agree to make or have less as long as others were even poorer. Resist the impluse to compare yourself to your neighbor.

What's Happening?

The recent downturn in the markets motivated me to talk about what is happening today. The fallout in the banking industry, Lehman Brothers declaring bankruptcy, Merril Lynch selling itself to survive and the AIG bailout are examples of our free enterprise system working. Thats right the system works. When companies such as these are poorly managed, take unnecessary and excessive risks, should go out of business. As an example Merril Lynch is on its third CEO this decade alone. This is an indication that there is no clear leadership. Companies such as this should not survive. However we as investors must not panic in times like these. We must remain disciplined and focused on the future. Ten years from now this will only be a 'blip'. A great example of investors behaving in inprudent ways, is Peter Lynch and the Fidelity Magellan Fund. Mr. Lynch managed the fund from 1977 to 1990 and realized an average annual return of 29%. Mr. Lynch himself said most people who invested in his fund lost money. Because they bought when times were good and sold at the first sign of a downturn. Successful investors develop an investment policy statement and they stick to it. They know market timing does not work. If you have such a strategy read it now and follow your plan.

Next Year's Top Performing Funds!!!

No one ever prints a Magazine cover with NEXT year's Top Performing Funds. Not even the fund companies or brokerager companies know what funds or stocks are going to do well next year. If they did, they wouldn't NEED humdreds of funds and managers. They would have one predictably sound mutual fund, They don't. They hedge their bets. They create products for you. In reality they have no idea what their so-called experts will produce.

Now is Always the Best Time to be Prudent

Many times investors who speculate or gamble with their money will lose large percentages or chunks in short periods of time. When they realize that their investing activities were imprudent, they want to change, but say, "I have to wait until it comes back before I can change my ways." Remember the same ill-advised strategy that failed can continue to squander your wealth. If you have broken the rules of prudent investing, NOW is always the best time to adopt a better way.

Markets Are Random

Markets are random...Get Over It! If you invest in the stock market no one can "save" you from the down periods-NO ONE. If markets were not random and unpredictable , they wouldn't offer higher expected returns. Markets randomly and unpredictably go up AND down.

Financial Planner vs Coach

I will concede that not all planners, brokers, or financial institutions are part of the problem. There are some very well-meaning people out there who do a great job, that make great recommendations, and help their clients. In my opinion, they are the exceptions to the rule because the industry at large is skewed against the investor. If the temptation is great enough, even a good person, an honest person, can end up being self-interested and hurting others. I truly believe that imprudent recommendations are unintentional, on the part of the planner, the majority of the time. They don't even know that they are doing it. They actually believe what they are doing is in the best interest of the client, In reality, it isn't. Whether you are using a broker or a person that calls themselves a financial advisor, the recommendations can easily become slanted and self-interested. Because of this, it is critical that you use a coach. What's the difference? A coach helps you make the prudent decisions about how much volatility and what types of risk you want to incorporate into your portfolio. He or she helps you distinguish prudent from imprudent risk. A good coach also aids you to truly understand and measure diversification in your portfolio, and works with you on what you really want your money to do in the future.