Early readers of Trees Full of Money may remember my article on investing in a turbulent market. In that article I argued that the financial markets were near “perfect”, and constantly juggling your investments to take advantage of market cycles will inevitably due you more harm long term:
The market is more transparent now that it ever has been. That is, every conceivable scrap of information that would have any impact on the markets (with the exception of illegal insider trading) is already factored into market prices. Economists refer to this transparency as being “perfect”.
No one can predict how much more negative or positive information will come out on any given day. If they could then that information would already be available and factored in to the markets.
When we lose sight of the main reasons we invest in a particular security (good products, services, poised for growth, etc.) all we have left as investment guides are our emotions. I challenge that you won’t get back into the market at the right time! Unless of course you’re lucky!
Amid this current financial collapse we find ourselves in , I am sadly loosing my faith that the market is anything close to “perfect”.
When investment banks began hiring mathematicians and physicists to concoct new ways of classifying and mitigating the risks of various mortgage backed securities (among other risky financial instruments) that had become too complicated, the back rooms of Wall St.’s investment houses effectively made the common American Investor nothing more than a pawn.
There can be no “transparency” of the market when even the investment houses have trouble understanding the products that they are packaging. In such situations, there certainly cannot be a “perfect” dissemination of information.
I was browsing through some of my favorite financial websites this evening and came across an investment survey being conducted by Miranda from the personal finance blog Yielding Wealth.
Prompted by the continued downward spiral of the world financial markets, Miranda’s survey asks readers what changes they are considering in their investment strategies.
“As The Economy Tanks, What Are You Doing:”
A) Nothing. Overall, things head back up. I’m sitting tight.
I answered “A”. My faith in the market has taken a hit, but I still believe my long term investment strategy will pay off in the end. That withstanding, I will be the first to admit that I’ve entertained thoughts of pulling out of this market!
B) Sitting back. I pulled everything out last year, and now I’m feeling good.
C) Taking a measured approach. Looking at my portfolio. Keeping the solid investments. Considering cash.
D) Panicking. It’s to pull everything out. NOW.
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{ 4 comments… read them below or add one }
It may not be the best idea to panic and sell everything, but it could be a good idea to look at your investments and make a few adjustments.
If you decide to sell anything, you should consider buying some gold.
Thanks, I’ve never been a big fan of gold. The idea that it has “intrinsic” value is lost on me.
Like any other security, currency, bond, or other financial instrument GOLD is only worth what someone else is willing to pay for it.
At least with oil, you can burn it to stay warm. Gold can do nothing other be molded into a shiny fishing lure, but the metal is probably too soft to hold a fish!
Parts of the world rely on Gold as their only reliable currency. Many countries’ currency fluctuates so much it literally isn’t depended on.
Gold also plays a big part in many countries cultures. My brother-in-law is Laotian and I know its important to theirs. I believe India is the biggest country where gold is integral in their culture.
The demand for Gold jewelry is also on the rise and some say that alone outweighs the amount being mined.
Gold is also used in many electronic devices and other consumer goods. One website says 12% of the demand for gold comes from industry.
In short, mined gold doesn’t just completely amass. Much of it is being consumed and I would argue demand far outweighs supply at this point.
Nice points there! Thanks for raining on my parade!! LOL!