How to be a Patient Investor

Slow and Steady Wins The Race

One of the great Jack Bogle’s most memorable quote is “Buy and hold, but don’t forget the hold”. What is the meaning behind this quote. Lets say you have a stock or ETF that you have bought thereby satisfying the buy part of the equation. You’re now contemplating buying more shares to add to your position of hopefully a total stock market index fund. What Mr. Bogle is saying is that holding is far greater than buying or selling. It doesn’t matter when you buy, but it makes the world of difference if you hold. It doesn’t matter if you buy at the top of the market or the bottom, if you continue to hold through the swings of the market you will come out on top.

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How to develop an income stream

Investing in stocks is like farming. There is a time to reap and then there’s a time to sow. It’s a great hobby to partake in if you have patience. That’s why the stock market is not the best place to keep your emergency funds. It’s the same reason why your personal home should not be viewed as an investment. The housing market has ups and downs just like the stock market. When the housing market is hot then that’s the time to sell high and when it’s low that’s the time to buy at a bargain price, but life is not going to wait until the housing market is hot for that promotion to occur that’s going to require you to move across the country or for some tragedy to befall your love ones that will require you to move closer to home help take care of your family.

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How to choose between passive vs. Active investing

The reason I hate investing in individual stocks is because at the end of the day there will be winners and there will be losers. All of your individual stock holdings will not win. To win at investing in individual stocks your winners have to outperform your losers. Your winners have to win bigger than your losers losses. At the end of the day they may just end up canceling each other out and that is why you have to cut your losers short and let the winners ride. I always end up wishing I had invested more capital in the winners and less In the losers.

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Perspective

1. Stocks will likely continue to fall for the next 1 month, 3 months, 6 months or 12 months

2. Stocks will likely hit all time highs again in the next 1 year, 3 years, 5 years or 10 years.

3. If you’re a long term investor and don’t need to touch your cash for the next 10+ years then how low the stock market goes and how long it will take before stocks find a bottom doesn’t matter.

4. Stocks will likely continue to trade at a discount relative to all time highs for the next 1-2 years. There is no need to stress if you can’t deploy a massive amount of capital into the market at the current levels. Don’t worry about buying the bottom or catching a falling knife, just continue to invest regularly and dollar cost average.

Reasonable Investment Plan

I just heard another sad story about someone who lost a lot of their nest egg during the Great Recession and can’t retire until they are 70 years old. This individual is now 60 and trying to figure out how to slow down and still maintain a sufficient salary to meet their goals. This situation likely occurred from either panicking in the middle of a market crash and cashing out or investing in risky assets. Stories like these still strike fear into the hearts of many americans as the doom and gloom mantra dominates the mainstream media headlines in this record setting bull market.

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Broad Outlook Asset Allocation

I believe our dollars should be broken down into three main categories. Present money, future money and retirement money. These categories should be contributed to after the elimination of debt, with the exception of mortgage debt.

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The Market Cycle

 

I recently read Robert Kiyosaki’s, the author of Rich Dad, Poor Dad, recent article about the seven stages of a financial bubble which was first mentioned in Nobel Laureate Hyman Minsky’s 1982 book titled Can It Happen Again. The seven stages of a financial bubble as Robert Kiyosaki stated in his post are

  1. A financial shock Wave
  2. Acceleration
  3. Euphoria
  4. Financial Distress
  5. The Market Reverses, and the Boom Turns into a Bust.
  6. The Panic Begins.
  7. The White Knight Rides in occasionally.

Stage 1, the financial shock wave occurs when a financial disturbance causes a crisis. Examples include a war, substantial interest rate changes or new technology.

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Preservation Of Capital

Preservation of capital is one of the most important rules of investing. Just like the physician’s oath is to do no harm,  preservation of capital is the investors oath. Abstaining from negative returns and avoiding loosing it all on bad investments is the golden rule. This is probably the top reason why so many individuals fear getting into the market and end up sitting on the sidelines. I’m sure we have all heard the horror stories of people losing their shirts in realestate investing and the like.Continue reading “Preservation Of Capital”

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