Posts made in May, 2011

What Squirrels Teach Us About Investing

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I wrote this a few years ago on an old blog and a friend suggested posting it for those who never saw this little exercise that might be beneficial to your stress level. As an added bonus, it might even help you with your investments.

No matter where you live in America, there is probably a squirrel in your yard every day. Just for fun, take an opportunity to watch the squirrels today. Maybe take your morning cup of tea or coffee into the yard and sit quietly watching the squirrels at work and play. Watch them as they stand in line at the little squirrel coffee shop discussing the acorn futures market. As they read the Squirrel Daily’s Business section looking for an update on the upcoming acorn tax legislation. Panicking as they hear that there may be an oversupply of acorns driving the price down or a shortage due to climate change. Many squirrels distrust the reporting of other squirrels, so you may notice some watching Fox News, sorry, couldn’t resist. If you actually see squirrels doing this in your backyard today, film it and your money worries will be over. But you won’t see squirrels doing anything like this.

So go back to the coffee, take a deep breath, let it out nice and slowly, and watch what squirrels really do all day. You may see them stop and enjoy an acorn or you may see them collecting acorns and running off to hide them. They may have a little fun chasing each other or running off a few birds from your bird feeder. If you think about it, squirrels are the ideal long-term investors. Every day they work on their portfolio, harvesting dividends(acorns) that have fallen from their investment portfolio (trees). Some of the dividends are used immediately. They sit back, like the squirrel above, and enjoy a little of their tree’s income for immediate consumption. You may see them reinvesting the dividends by putting them in a little hole where, if not found during the winter, they will ultimately become another income producing investment in the form of another tree.

Squirrels never develop investiphobia. Following their instincts, they invest wisely and enjoy the fruits of their labor and their investments. We should be more like squirrels. So, hop up and chase your neighbor up a tree. Or, get to work and focus on work. When you play, enjoy yourself immensely. Life should be fun. Do this daily and you may find that your portfolio does fine, even when you don’t watch it every day, hour, minute! I’m back to work, but tonight I’m watching squirrels.

Money is not your life. It is simply the means to the life that you want.

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Getting There! Your Personal Apocalypse

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The New Normal

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Over the past decade a term has been created and overused in an effort to describe the changes we have all experienced in the recent economy. This term is the “new normal”. Logically, the new normal means permanent change from the old normal. It implies something “new” and often something bad.

From an investing perspective, the gurus tell us the new normal means lower returns on stocks and very low interest rates on savings and fixed income investments. We are told the techniques of the past, like asset allocation, don’t work in the new normal. Even professionals are concerned about whether the goal is growth or avoiding losses.

With everything now falling into this new normal, we are told that we need new approaches to handle our money and investments.

Market timing, long-short funds, alternatives, and other techniques are being marketed as new methods for the new normal. But, none of these techniques are truly new.  They have all worked at times and they have also all failed at various times during the old normal.

When you think about it more broadly, the old normal had the following characteristics:

Nothing is permanent

Nothing stays the same.

Change is a constant

Sounds a lot like the new normal, doesn’t it? When it comes to investing, “asset allocation” is really just a complicated way to say, “Don’t put all your eggs in one basket”. Isn’t that exactly what you should do when the future is not known?

The phrase, “new normal”, is really a brilliant marketing phrase to motivate people to change their strategy. Permanent change to a new normal should require all of us to try new strategies and abandon the old methods that won’t work in this new normal, or so we are told.

My advice is to ignore the phrase, “new normal”, because the changes we see around us are part of the way things have always been. There is no new normal and there never will be. The old normal, plain normal, and new normal, share one characteristic –  change.

There are no crystal balls and nobody knows the future. And the past, well, it is the past. It was no better then than it is now. Investing really hasn’t changed that much either. Nobody knew the future back then and nobody knows it now. Invest with that in mind and resist the urge to try a new technique designed for the new normal.

Remember, the past and the future are different. The past is certain and cannot be changed. Living in the past would be boring because we already know what happened.

The future is uncertain and has not yet arrived. Living in the future might be fun, but it is not possible. And we must live, and invest, knowing that the future is not certain.

What separates the past from the future is a very tiny unit of time – now.

Although it is very short in duration, it is the only time where we have a choice. These choices are made without any certainty of the outcome.

And this is not a bad thing.

Isn’t uncertainty the very thing that makes life exciting?

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