Sunday, September 29, 2013

The market owns them...

Rep Sander Levin D-MI, a week or so ago in a CNBC debate, chided his Republican opponent (can't recall whom) for he and his colleagues taking us to a potential fall-2011ish mess. He kept on and on, in most dire fashion, about the 16% drop in the S&P 500 that occurred during that debt ceiling showdown. And, believe you me, Sandy's fears do not rest merely with Sandy. Both sides of the aisle, as well as the Fed, are deathly (politically speaking) afraid of the stock market.

So then, long-term investor, if you view the present goings on in DC as pure stupidity---that you'd like to see a quick end to---pray for a stock market crash come this Monday and/or Tuesday. I assure you, nothing inspires political resolutions like a good old fashioned hit to Joe Voter's 401(k) account. And, please, hold out no hope that any resolution crafted by the present cast of characters will somehow answer our ongoing challenges. Hamstrung as all politicians are, they are utterly incapable of acting in the best interest of the economy at large. Thank goodness, therefore, that the economy is not all about Washington---that policy in the U.S., as awful as it's been, for decades upon decades, has been unable to uproot the forces of capitalism.

While we may very well experience more policy-induced bubbles and busts going forward, I see nothing that cannot, ultimately, be overcome by good old American ingenuity...

For two additional doses of sanity, read again Our View Going Forward and Stress Less.

Here are the closing paragraphs of Our View Going Forward:
The Bottom Line – investment-wise:
The unpredictability of markets, while unnerving to some, forever offers opportunity for the disciplined investor. In fact, long-term investment success is indeed all about discipline. Investment mistakes are typically emotionally-driven. Fear can drive an investor out of equities long before his/her financial plan would have called for. Typically, and ironically, the times of extreme panic have tended to be extreme buying opportunities. Conversely, greed can inspire an investor to overweight—relative to his/her time horizon and tolerance for risk—a given sector, or stocks in general. Typically, and ironically, times of investor euphoria (think tech in the late 90s and real estate in the mid 00s) have tended to be ideal times to rebalance out of equities.

Maintaining an asset allocation/rebalancing strategy keeps one from succumbing to the herd mentality. And, as we’ve discovered, following the herd is generally not your recipe for long-term success—think tech in the late 90s (irrational exuberance), the subsequent market bottom in March 2003 (extreme panic), and real estate in the mid 00s (irrational exuberance), and the subsequent market bottom of March 2009 (extreme panic). I suspect the holders of long-dated bonds have yet to learn that painful lesson.

The Bottom Line – economically, and societally, speaking:
While there’s plenty in terms of geo-political risk to concern ourselves with at present, the future holds as much promise today as it has at any time in history. Yes, mistakes, particularly mistakes of policy, will be made. And yes, such mistakes will deliver hurdles and setbacks in the years to come. And yet future generations will witness the advancement of the human condition in ways we can’t even begin to imagine. The ultimate pace of that advancement will be determined by the extent to which we possess the freedom to pursue our individual objectives, and the freedom to conduct business in the global marketplace going forward.

Near-term, I remain cautious. Long-term—bumpy roads notwithstanding—I remain wildly optimistic. That (long-term wild optimism) said, your portfolio must, at all times, reflect your time horizon and your temperament.

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