Today, the average American male lives to be 74, the average female lives to 80. I know the key to financial independence, perhaps over decades of retirement is an income you can’t outlive, an income that is rising even as your cost of living continues to go up.
Personally, I think the biggest financial risk to all of us besides losing one’s money, is outliving it, which means owning the stock market is more critical today than ever before. Remember the cost of living has tripled over the last 30 years, yet few triple their income in retirement? Risk is the extinction of purchasing power. Safety is increasing your purchasing power. Last week I paid 45 cents for a postage stamp. I will bet my cowboy boots the price of stamps is only going one way. Care to guess which way the price of stamps will go?
The stock market is simply a facility for the exchange of shares. Just like the markets for fur, guns, traps or fish it is driven by supply and demand. My friends on the NYSE floor understand fear and greed better than most but they can’t tell the difference between preferred stock and livestock. When I last checked fear and greed hadn’t changed for around 10,000 years.
Today, capitalism is the organizing principle for most of the human activity on the globe, for no one can stop capitalism. Here are 10 reasons why the
United States stock market is going to continue
up much like it has during your entire lifetime, (1) the has the greatest number of
entrepreneurial managed companies in the world, bar none. (2) we have the
leading military in the world (3) we have the leading high technology in the
world in both hardware and software (4) we have the leading medical technology
in the world (5) we have the leading political system in the world (6) we have
25 times more Nobel prize winners that any other country in the world (7) we
create more jobs than Japan and Europe combined (8) we have 11,000 companies
that trade publicly under some of the better accounting rules anywhere (9) you
as an American have the freedom to accumulate wealth and extract out of life
what it is you want and (10) the stock market doesn’t care who you are, what
color you are, where you went to school, and, (because I grew up in the poorest
county in America on the Pine Ridge Indian Reservation), it doesn’t care where
you came from. U.S.
Things are great and they are going to get better. I feel the 21st Century started in 1989 when the Berlin Wall came down. Change is certain. I am one of those guys that believe you set your goals in life ahead of time. Mine includes being a free person; freedom is what this country is all about. The opportunities for success are greater now than ever before. For the first time in the history of the world all the people who are poor know they are poor. Success has nothing to do with money and everything to do with how you feel about yourself. Your net worth is your ability to function. When I was a cadet at the
United States Military
Academy at West
Point postage stamps cost 8 cents and the Dow crossed 1,000 for
the first time. That same year the
microprocessor was invented. Today, 85%
of the scientists who have ever lived are still working! When I took my degree in Economics the price
of a stamp was 13 cents. Still think you
don’t need exposure to the stock market?
The market is a funny place. It is the only business in the world when things are on sale, people don’t want to buy. The greatest enemy of long term investment success is not ignorance, it is fear. You see, fear leads to panic and panic breeds the inability to distinguish between temporary declines and permanent losses. When people panic they don’t discriminate. Since all market declines have been temporary and all advances permanent, we know the key to investment success is not found in intellectual babble like beta’s, standard deviations or chaos theory. It’s time in the market. Put time on your side. The single greatest thing you have going for you is time because no one can successfully forecast interest rates over the long term and no one can forecast short to intermediate term stock market moves. Long term the market always goes up, that is inevitable. But, why do investors lose in the market and why has the average mutual fund investor only averaged a return of 2.7% per year in his mutual fund holdings?
I don’t mean to be critical, but most people invest through the rear-view mirror. They buy mutual funds after they have gone up substantially. They have bought into what I call the
of investing. They buy into the hottest fund, in the
hottest sector, in the hottest country, from the hottest brokerage firm and the
one that has the most “stars” next to it in Money magazine. Then what happens? You know the drill. They turn cold. In fairly short order, a perfectly normal
market correction comes along. The cycle
comes to an end. Investing like that is
like enlisting in the Taliban on Sesame Street
School September 12th,
2001. Yes, you are
joining the proudest fighting force in the world that day. Yes, your outfit just pulled off one of the
greatest disasters of all time. But you
know what? You are toast. Your obituary is written. It is all downhill. I have no wish to drive
this message into the ground like a Cruise missile but I want to make one point
very clear. Pay attention. At the end of an investor’s life, less than
5% of his total lifetime return will from what his investments did versus other
investments. The other 95% will come
from how the investor behaved.
You see, I have a firm belief that there is absolutely no relationship between investment performance and investor performance. Stock market success is a function of two things. One, recognition that the markets will go down and sometimes go down a lot, and two, prepare to regard those declines as either non-events or buying opportunities and never as an occasion to sell. With all certainty, I know that the most boring and mediocre stock fund in your portfolio, the one you hold onto during a vicious bear market is infinitely better than the world-class stock fund that you sell out of at the bottom of a temporary decline. The secret to making big money in stocks is to not get scared out of them. Americans, God bless them, are totally unable to distinguish between fluctuation and loss. The bottom line is this, and if you don’t believe me you have the right to be wrong, but don’t forget it, the higher your exposure to stocks as a percentage of your assets the better your overall return, over the long term. In the long run, no one controls our investment fate. We control it. Believe it!
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