Buy, Save, Hold, and Buy

 
I tweeted this Friday as the stock market was poised to fall:

BuyHoldTweet
While it’s true, it’s also a little too simple as tweets often are.
My real strategy is a buy continuously, but buy more when prices fall, and save (and hold) as prices rise.

Buy Continuously
This is your automatic savings and investing such as your 401k, Roth IRA, or 403b. Start young and do your best to max this out. Take full advantage of any matching funds and never, ever, take a loan out against these accounts. The money coming out of your paycheck on a regular basis is dollar cost averaging and captures both the ups and downs of the market and smooths out wild swings like the downside rout we’re having now.

Buy More as Prices Fall
When the market drops, that’s the time to buy. As Warren Buffet said, “be greedy when others are scared, be scared when others are greedy.” Don’t try to wait for the bottom, just dollar cost average more aggressively. Friday I invested less than 5% of the money I’ve been saving over the past year. As prices continue to fall I’ll buy more again.

Save as Prices Rise
Over the past year or so I haven’t been buying stocks (I buy stocks only in low cost index funds) and instead have been saving more aggressively. This doesn’t mean that I haven’t been buying any stocks, just not any above my set investment plan. Now I have more capital to invest and since prices are lower I hope to get better returns. Too many people don’t have the discipline to save like this but if you can then you’ll be prepared like I am.

It Paid Off Before

Do you remember how far the market fell in 2008? In 18 months the Dow Jones Industrial Average lost more than 50%. Many people sold, panicked really, but not me. I continued buying throughout 2008 but still I lost a huge amount of money, with my net worth diving 16.44% (check the chart below). In 2009, however, my plan and my discipline paid off. My net worth rebounded by 24.93%, more than recouping the losses of the previous year.

My net worth percentage change chart

 

 

 

 

 

 

 

So what’s your plan in this tumultuous time for the market? Panic and sell at the worst time or stick with your plan and take advantage of low prices?


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Foolish Cycle Continues

 
WhitneyThe experts are at it again. Not that they ever stop spouting off but when they change direction I think that’s a sure sign to ignore them. One such expert perpetuating this foolish cycle is Meredith Whitney.

The Difference

I’ve said it before, that if you use the gauge of who is richer, who garners more respect, and who can get on TV any time she wants then Ms. Whitney is far more qualified than I am to offer her financial advice. The difference is that I’ve been correct in my predictions and she’s been wrong though she’ll never admit it (especially to me).

What Now?

Stocks have gone up very quickly and there are various reasons for that but Ms. Whitney has been cautious about stocks – until now. CNBC states “Known more for her pessimistic take on the markets, and banks in particular, Whitney has turned in the opposite direction.” Run the other way!

Whitney says she’s “not been this…bullish…on equities in my career.” Yeah I know, but I have, and I’ve been right and she’s been wrong. I’m a lot more cautious, now, just as she seems to be jumping in with both feet.

This reminds me of another person I’ve called out for being a fool who jumps on whatever bandwagon is rolling through town, James Glassman, who wrote the book DOW 36,000 just as stocks were about to crash from their internet binge. Glassman later wrote, Safety Net, a book about how stocks were not a good investment and which favored bonds just before this amazing stock market run we’ve experienced these past few years.

Pickers

My feeling on investing has evolved over the years and at one time I thought I could time the market, predict with reasonable certainty what individual stocks would do. I was wrong. Since then I have become a passive investor (passive is such a misnomer).

It’s been said that you can pick your friends, you can pick your nose, but you can’t pick your family; I’d change that to you can’t pick the direction of the market. And yet people try. They tried with internet stocks, they tried with housing, and they’re trying again with bonds.

My Advice

You choose whether you want to listen to these so called experts but my advice is to ignore these fools and invest with a long term view. Tomorrow I’ll have a post about how my saving and investing has enabled me to be aggressive when I wanted and cautious when I needed.


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