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The Most Important Thing To Do If You Choose To Invest

30 October 2008 2 Comments

Investing is a tricky game. Anyone with stock market exposure over the last few months, which is just about everybody, will definitely agree that investing is not as easy as some would like to believe (especially during bull markets). Today, I’m going to talk about the most important thing you can do if you are an investor or looking to become an investor.

The most important thing for you to do as an investor is to have a long term plan and to stick to it, regardless of how the market is performing at the present time.

Changing your plan because stocks are down 30% is the worst thing you can do. Your plan should still be your plan independent of current stock market performance.

The only thing that should warrant a changing of your plan should be if your investment goals change or some kind of emergency warrants you having to liquidate investments (this should be prevented by having other assets that can be liquidated for emergencies). Now, just because I’m saying you can change your plan if your investment goals change, do not change your investment goals based on stock market performance of the last few months. If you are doing this, then get out of the stock market.

What Is Your Plan?

If you don’t know, figure one out quick or you will be at the mercy of the volatile movements of the stock market. If you do know, then you shouldn’t really worry about the day to day stock market movements (unless of course your plan is based on short term trades).

For example, your investment plan might be to build positions in strong American based multi-national companies with a proven record of consistently, increasing dividend payouts. If this is your plan, abandoning it now when the market is down is the opposite of what you should be doing.

Or, perhaps your plan is to simply invest in a way that provides a hedge against the erosion of purchasing power of your cash savings? If so, gold and commodites might be good buys right now.

My Plan

I believe that our country’s monetary policy is going to result in some disastrous consequences for our country and our country’s wealth. I believe China and other Asian countries represent true growth and an economy similar to America’s long ago. An economy full of manufacturing, exporting, hard work and personal savings. Also, a pro-economic government. Yes, China’s communist government is pro-economic. Much more than ours. I believe the biggest challenge my generation will face is the loss of purchasing power of the US Dollar. Therefore, a big part of my investment plan is to protect myself against this challenge and to possibly prosper from it.

I believe gold, oil and commodities are great investments at current levels. Their prices should rise as a result of increased inflation here in America. Also, oil consumption worldwide is still increasing even through a worldwide recession (Imagine what it will look like when economic activity picks up).

I also believe in getting some exposure to foreign equities (such as Chinese companies).

Lastly, there are a few domestic companies I really like. Especially Apple. Apple has a bullet proof balance sheet, a true game changing device and platform in the iPhone, and international growth. I also like Philip Morris as a fairly defensive, internationally exposed stock with a nice dividend yield.

Conclusion

The point here is not to push you towards a specific investment plan. The point is to emphasize the fact that you should stick to your plan regardless of what the market is doing this week, this month, or even this year.

Take this opportunity to re-evaluate your plan and remind yourself why you have chosen this plan.  I’m sure the reasons behind the plan have nothing to do with current stock market performance.  Good luck.

2 Comments »

  • torbjorn rive said:

    I agree with some of the things you say – like sticking to those large, dividend paying stocks, and certain ones that’ll grow despite tightened consumer spending (cigarettes=addiction)…but I would actually say that YES, given the past few months of change your investing style should change.

    For one, we don’t yet know if buy-and-hold as we have known it has changed (at least for the next 10 years). And I’m serious when I say that. My mutual fund “advisor” was a boomer (and I say WAS because I no longer deal with mutuals other than my locked in / tax-free RRSP), and it just turned out that I felt like I was being lied to all the way back to 2006 when I first started investing. Of course at that point no one could see the future, but big banks’ll tell you to buy and hold so that they can keep you in the money. They don’t know if prices will go up, they just want you in with them. Putting your faith in indivisual stocks is different though, which is why a more hands on approach is becoming better.

    Now, of course not everyone has the time to be hands on and trade trends; but if you don’t have the time to be hands on with ETFs – are you sure you can just put trust in long term performance?

    I’m not here to tell you what to do, but world/money/finace design has changed and will keep changing. It’s true, Kevin, what you say about getting out of the market – but I think you put that in the wrong place. If you’re not prepared for change, and not ready for personal management, THEN get out of the market.

    Anyhoo, lets see how this all plays out. My stance is that I can’t trust big stock at the moment, but that could change.

  • max bottaro said:

    Ive been thinking what you just said for awhile- China’s new power economy reminds me a lot of America’s during our industrial age.

    While a strong economy is valuable, I wonder if it will really improve the lifestyle of the average person in China? Regardless, the are going for it… China is hardcore, they will become a dominant economic entity. If I had some $$$, I would probably invest some over there. If I had kids I would be teaching them Mandarin too.