Saturday, June 9, 2012

Worrywarts


There are even books titled ‘Worrywarts’: The Worrywart’s Companion; The Worrywart’s Prayer Book; Intergalactic Worrywarts (I kid you not) and my favorite: the Purple Sluggy Worrywarts!   A search on Amazon revealed that they are currently selling 37 books with ‘Worrywart’ titles.
I know you may worry that if ‘Worrying’ is so prevalent in the world then why are there not 2000 titles for sale or even more. Maybe you worry that only 37 titles suggests that the world is not worrying enough. So I did search for all ‘worry’ and ‘worried’ titles which added 1783 and 292 titles respectively to the total. Now we’re comfortably over 2000 titles that worry one way or another. Hehe,… that is one thing less to worry about!

Then I had this brilliant idea and did a Bing search for ‘worried investors’ and it found over 25million postings. Unfortunately, Google didn’t do as well in 0.23 seconds it found only 18 million items. Now you may understand why I prefer Microsoft (Bing) over Google! And Apple… pffff do they even own a search engine?
Every day investors seem to react to yet another worry. Since 2008 we have dealt with: Lehman’s, Maddox, the Financial Crisis, the Subprime crisis, the low oil price, the Shipping index, low liquidity, the U.S. Real Estate collapse, European debt crises (installments 1 through 10), Peak oil, Global Warming, Kyoto scrapped, Oil sands pollution, Keystone, Structured Debt Vehicles, Rising unemployment, falling GDP, Japan’s Earth Quake, Iran’s fascist Nuclear Threat; North Korea’s Communist Nuclear Threat, the Arab Spring…. and another couple of hundred causes of the never happening ‘end of the world’.

Every time that the 'world ends', the markets reacts with volatility. The volatility is used by hedge funds with limited success and great self-delusion to 'profit' and by banks and their ‘rogue’ employees for rampant speculation. Retail investors are scared ‘sh.tless’ and avoid the stock markets like the plague while they park their money in Guaranteed Investment Loss Certificates and other low risk money losing investments. The markets live by fear and breathes fear for close to 10 years now. The scariest fear is of course the prospect of yet another 'Bubble' - we're seeing bubbles everywhere!

 Since March 2009 though, we literally have been climbing a wall of worry. Just look at the charts of the Dow and S&P500. Commodities, in case you have forgotten, usually do best when the economy is firing on all cylinders late in the business cycle, thus the TSX has been lagging since 2008. Amongst all the worries, you may have forgotten that Canadian Real Estate overall has done quite well in Vancouver and Toronto; thank you very much! In Alberta it was tougher! But then Alberta's real estate profits during the early part of the decade were outright spectacular and over the long term investments do tend to revert to their average!

So if you didn’t panic and if you didn't sell your stocks you would probably have broken even regardless of all the turmoil. You might even have made a bit of money if you focussed on cash flow rather than appreciation over the last 5 years. Of course, now that everything seems depressing and we’re living in this 'perpetual gloom', you may be tempted to walk away from all this investment misery!

In reality your internal psychological warfare is the main reason that investing is not easy! You have to learn to differentiate between what works (over the long term) and what will not survive, rather than worrying about the daily moves of the markets. Think long term because over time  investment performance will return to the long term average.

When the markets move all up in unison and euphoria, even the most rotten investors make money. But it is during these though times, when we’re climbing the wall of worry, that the good investors create the foundation(s) of their future wealth.

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