The financial markets have been very choppy this quarter. We started off 2007 with day after day of the stock markets hitting new highs. Then one crazy Tuesday in February (27th to be exact) the bottom fell out of the market (I blame it on my producer Heidi; she was off that day spending time with her dentist and a root canal). Ever since it has been up and down to the point that many of you are wondering what in the world is going on.
On today’s show I am going to share with you the resources that help me determine what is going on in the financial world.
Before I let you into my Blackbook of economic research I feel that I need to offer some common sense to this discussion and the mind set you need to have to be a successful investor.
Understand the weakness of your of gut. The short-term financial markets are driven by the fear and greed of investors. Most investors are their own worse enemies and because of it do everything backwards. According to the 2003 Dalbar Study “Market Chasing Mutual Fund Investors Earn Less than Inflation:”
* The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S&P 500 index earned annually for the last 19 years.
* The average fixed income investor earned 4.24% annually; compared to the long-term government bond index of 11.7%
This shows me that most investors are “Buying High and Selling Low”. There is also this mentality that you should buy the best performing fund or sector from the previous year. This is demonstrated by the fact that the average investor held equity funds a little over 2 years. 2 years is not a realistic holding period.
The secret to investing is to be focused on the long-term. Most of your investment assets are probably in retirement accounts that you will not have access to until your are 59.5 years old. With that being the case do not worry about what happens in the day to day market. You need to focus on your long-term plan with your ultimate planning goal, your risk profile, and coordinating these items into an effective asset allocation (check out my previous show on asset allocation if you need help).
Ok now that I have climbed down from my soap box I will share with you where I go to research the health and future of the financial markets.
General Financial Analysis and Entertainment:
The Top Dog on what is going on with the finacial world is of course the Oracle from Omaha, Warren Buffett. On March 1st the Oracle released his review of 2006 through “Warren Buffett’s Letter to Bershire Shareholders”. Warren’s insight is very interesting and outright entertaining including his realization that Berkshire paid enough taxes in 2006 to run the government for more than half of one day.
The Fixed Income Market Place (Bonds):
The Warren Buffett of the Fixed Income marketplace is Bill Gross. Bill is the founder of Pimco and also runs the Pimco Total Return bond fund. Bill provides market commentary on his website and also has a Podcast that you can find on iTunes. I will warn you that Bill is not scared to express his politics in his podcast show, but with a record like his he can say whatever he cares to.
Contrarian View Points (Alternative Investments):
Dr. John P. Hussman is the founder of Hussman Funds and manager of the Hussman Strategic Growth fund which is classified by Morningstar as a Long-Short Fund. This category of investments seek to make money whether the equity markets are up or down and you can see that this holds true for Dr. Hussman if you review his fund’s historical returns.
Caldwell & Orkin has been beat up pretty good because of their lack luster performance 2003-2006, but these guys know what to do when things get ugly in the equity marketplace. I was fortunate enough to own this fund in 2000 when the market started its fall, so I have a soft place in my heart for this investment. If you click on the “Document Library” link you can download their Update Newsletters.
These are just a few of my research tools. I am also fortunate enough to get several premium services (aka they cost money) that keep me up to date on economic releases and commentary, but this list is not too shabby since everything is free.
Good luck and remember to think LONG-TERM!