If you read the first part of Markets Gone Crazy, you’ll know that I left the article hanging. You may think that I did so like a “cliff hanger” so that you, the reader will com back to this blog. Yes, that was partially true. However, the more important reason was that somehow, I could put my thoughts in the correct way for you. I know the power of the internet and I surely do not want to write anything that you may perceive as advice and then go make investment decision based on what I write here. Further more, I’m no expert and do not want to you think of me as such.
Besides the 2 points above, I was working on other things and I’m glad I did not simply publish the second part of the article. Initially, I wanted to write something smart along the lines of creating and rebalancing your portfolio. Having observe the markets for a longer period, I came to the conclusion that it is anyone’s guess at the moment.
Heck, even this guy, the president of International Institute of Management, a US based research and education organization (and he predicted the 2008 financial crisis) have this to say, and I quote
The first problem is any prediction formula that is valid for one context is not necessarily valid for another. Formulas must be updated with changing environments.
The second problem with prediction is that even if you get the formula right, your prediction results are dependent on so many uncontrollable variables such as mother nature, geopolitical events, new regulations, and changing relationships that affect the prices of the assets in question.
Luckily, to be a successful investor you do not need to be right all the time, you just have to be more right than wrong. That is how Vegas Casinos make so much money and even the best gamblers lose, they only play games that have the odds in their favor, they play in more controlled contexts. Playing the stock market is not much different. Successful investing is as much about risk management as it is about forecasting.
The fact that the PIGS (European government like Portugal, Italy, Greece and Spain) are doing their utmost to instill confidence in itself to solve the issues, such actions make predictions even harder.
Looking at the way the market is behaving, I reckon any long term investment is practically out of the question. With such wild swings, them day traders will be darn happy. Day trading is not my cup of tea, but looking at the conditions now, that may be the only game in town.
I think the last point is key. Investing is as much about risk management. How well are you managing the risk? At the moment, the downside risk is higher than upside gain. And so you have to decide how much risk are you willing to take. At at time like now, the risk are high and so too the reward. Get it right, you’ll grow your money.
My first rule of investing. Don’t lose money and that means your capital. As for me, I’ve decided to concentrate on my business while keeping an eye on the market. After all, the markets have not really tanked. If you think it is risky, pull your money out and wait for the right moment to go in again. That way, you’ll sleep easy. If you have not invested, now it not the time to do so.
Work on your business or concentrate on your work. Getting sidetracked will get you nowhere. If you have time, read up and look for good solid companies that have taken a hit by the present fear. These companies will be the first to recover when things turn around.
