What NOT To Do

Man oh man, another week of CREDIT CRISIS. The word crisis used to send a chill down my spine but hell, it's been so long I'm basically chilled-out by now. I turn on the news every day. I read the paper...or at least some of the articles that aren't so inane that they make you LESS informed from their perusal, and all of these people who don't know anything at all and didn't know anything at all are telling everyone else (the regular, retail investor) what to do. There are those who opt for the classical approach. This is an easy approach. HOLD. You buy and you hold. The other extreme just continually repeats..BUY AND HOLD IS DEAD, BUY AND HOLD IS DEAD! However, I never catch what it means for it to be "alive"...maybe I always happen to need to jump into the shower right when they say that part. Then, there are the book writers. You have to love the book writers. There was one who wrote a book called Pounce. We were supposed to be impressed that he was only down 28%. -28% return...I guess he didn't quite lose 33 cents on every dollar invested, or 1/3 of your money, but he came close, and he beat the market (S&P 500) by about 900 bps. But, does anyone else see that the title is "Pounce." Why didn't he just pounce his way into treasuries...money markets...CD's? I know money managers who aren't writing books and were down 28%...what is so special about this guy's approach? I don't know, I'm personally not impressed and I HAAAAAATE being told what to do. I wanted to come up with a list of things NOT to do. Here are 5 things that we have learned (or should have learned) from 2008 NOT to do:


INVEST IN PONZI SCHEMES-Madoff anyone? I was forced to watch him being driven to the courthouse today in his Kia Sorento. He steals what, 50 billion dollars, or commits a 50 billion dollar investment scheme, and he drives in a Kia Sorento. The funniest part is that we have CEO's of multi-billion dollar corporations who are on the verge of bankruptcy flying around in private jets asking for government handouts. Our criminals are the ones exhibiting the utmost in frugality...

BUY GOVERNMENT BONDS-anyone who understands upside and downside risks would agree, this is the time to be selling. Risk free assets are not supposed to exhibit those kinds of returns. Why do we get any returns at all in markets? Because we accept a measure of risk. That's the only reason. More risk, over the long term, should mean more reward. Don't forget this, as the force driving it to be true in the long run is much stronger than any of our silly little emotions.

FORGET WHAT WE MAKE-I can't imagine people are dumb enough to actually borrow the amounts of money that they borrowed not paying attention to what they actually made for a living. They must have just spaced out. It might seem like a good idea from time to time to just spend ridiculous amounts of money that you don't have, but, please, think twice. Bills have a way of coming due at the most inopportune times.

PUT YOUR FAITH IN STATISTICS ALONE- OMG, the best one is the 1 in 1000 year event. Or the betas, alphas, standard deviations, P/E's, anything...BASED SOLELY ON THE PAST. Some things try to look in the future a little bit, but then these are only projections. The answers will never be solely in numbers. There is an art to this science.

FORGET YOUR RISK TOLERANCE- Stick to the fundamentals. Recognize your willingness to lose at all times, even when it might cost you a little upside in doing so. It doesn't ultimately matter the return that you get or when and how you sell your positions. The successful investor is always in absolute harmony with his portfolio in that it can't surprise him. He knows what he holds, he knows what can happen, and he has anticipated his worst-cases, however unlikely. Risk will garner reward. As Buffett says, American business WORKS. Take a page from Neo in the Matrix: "Know Thyself." Sound investments will follow.