Merry Christmas and A Happy New Year
I wish you all best wishes for the Christmas season and a prosperous and happy New Year. Perhaps in 2013 I will at last stop talking about the RDR because it launches on 1st January but somehow I don’t think that will bring the last of it. The implications will be interesting to observe and sadly tragic for many, but that’s enough of that – let’s enjoy a couple of weeks relaxing with friends and family.
Lyn Richards has left Interface after 12½ years. I thank her for her loyalty and reliability and I wish her well in her ‘retirement’ where I know she wants to spend more time with her grandchildren. To show our appreciation Tricia and I took Lyn and her husband Winston for a ‘Christmas Dinner’ at The Black Eagle in Hockley on 7th December. We will miss her and I hope that she keeps in touch. It was amazing to reflect how much the business has changed since she started here in March 2000. When she came there was a huge amount of paper to process almost all of which has now disappeared.
One of her daily tasks was taking the bundle from the Royal Mail van (it was too heavy for the postman to carry) and then she sorted, photocopied, sent on to clients, and filed. Now the postman brings about four slim letters per day which are scanned in seconds to our hosted Document Management System before they are shredded. The photocopier was given away last year because it had not been switched on for more than a year and it was simply taking space. The fax machine was similarly given away and while we still have a fax number, faxes are received electronically as emails without any paper being printed.
Our business is now based in ‘The Cloud’ and Lyn does not need to be replaced. Interface now employs several people and they are all cloud based and working in various parts of the country from Darlington, to Bath, and Colchester. The power of the Internet enables us to work with them as if they were in the room next door.
I know that some of you follow me on Facebook, Twitter, and LinkedIn so that you will be familiar with looking at photos of me with bells, ribbons, and hankies. For the last 30 years I have been out on Boxing day collecting for St Giles Hospice and for anyone that wants some fresh air before the cold turkey for Boxing day lunch we will the at the Fox and Hounds at Shenstone followed by The Railway. We dance from about 12 noon until 2 p.m. and usually manage to collect a couple of hundred pounds before going home to get warm.
I’m looking forward to seeing you in 2013
Ric Edelman’s “Rescue Your Money”
For the last few months I have been reviewing Ric Edelman’s “Rescue Your Money” and so far we’ve learned that market timing doesn’t work. Nor should you follow the fashion of the day, trust the media, rely on so-called experts, or make big bets on blue-chip stocks or hot sectors.
None of these ideas works, yet many investors persist in relying on those strategies. When one fails, they simply move to the next, confidently believing (or merely hoping) that it will pay off.
They do this because they accept the following statements as basic truths, statements that at best only partial truths and at worst misleading and damaging:
- Stock prices rise and fall
- The stock market is risky, volatile, and unpredictable
The first statement is true but misleading because is incomplete. It is true that on any given day prices might rise and fall but over long periods it’s more accurate to say that prices in the overall stock market rise a lot and fall a little. When prices fall, they fall a little and for a short period.
The market doesn’t simply go up one point and then down one point. Instead it goes up two points, then down one point. Then it goes up four, down one, up three and down one. OK sometimes the down is larger than the previous up but over long periods the stock market has always produced net profits. That’s why it’s wrong to be upset when markets fall. Instead of lamenting the current decline, focus on what is about to happen next. When you notice that stock prices are declining, don’t be upset. Instead become excited about what lies ahead.
The second statement says that the stock market is volatile and unpredictable and that makes it risky but does it really matter? When you invest are you planning to withdraw your funds in the next 30 days? Of course not so why does the day to day fluctuation matter? And the simple answer is that it does not matter.
When you view the stock market over long periods of time it isn’t so unpredictable and it’s not so volatile either, and that means that it’s not nearly as risky as you thought. This is why the best way to view the stock market is over decades, not days, weeks or months.
Unfortunately many investors don’t understand this. They fixate on the prices every day, wait for the value of the FTSE 100 on the news and they are wasting their time and energy. They should find something else to do.
Looking at your investments is likely to make you do the opposite of what you should do. If you see that prices are down, you’ll become upset and want to sell. If you see that prices are up, you’ll get excited and want to buy. In other words you’ll be tempted to sell low and buy high – a phrase that is now too familiar if you have been following this blog.
Stop watching the financial news because it does not help and maybe damaging. Unfortunately the news does not give the full picture. A story such as the following would help everyone a lot: –
“As of today, the stock market’s average annual return for the past twenty years is 8.4%”
… Much more useful but unfortunately not likely to make the daily news.
Now that you know the truth: the two basic truths are really nothing more than common myths. And by mistaking these myths as truths, investors set themselves up for investment failure. Dismiss these concoctions and instead believe that the stock market produces profits over long periods. Then instead of being afraid of investments get excited but not so excited that you become unreal in your expectations.
Next month I will move on to show how Ric’s approach to asset class investing shows that “it is better to be approximately right than precisely wrong” and goes on to show why many investors say they are willing to take risks when the market is going up but change their attitude when the market is going down.
If you would like to follow Ric Edelman why not subscribe to Ric’s email “The Truth about money” by clicking this link?