Hi,
There are stupid people who invest and there are smart people who invest. There is even a rather large group in the middle who will switch one way or the other.
You wrote:I know a bunch who don't pay a lot of attention
to the Dow..or such , they count on the fund managers
to manage. :-)....( this is the gang that has been trained to buy and hold )
Not all of this bunch started investing this year or last year. Quite a few, have 401ks, SEP IRAs, etc that date back more than 5 years. I'm pretty sure all of them will examine their statements at year's end.
Many of the long term investors will come to the conclusion that this was indeed a bad year. They will also see that they have more than they would have had in CDs.
Let's talk about a specific investment, a $10,000 investment in an S@P 500 index fund.
Starting from 1997 $10,000 would be worth $13,500 today. Guess what. That's just about the historical average for the S@P 500. Perhaps a tad more.
Starting from 1995 it would be worth $21,5000 today. That's about 15% a year or 50% more than the average.
Starting from 1990 it would be worth about $38,644 today.
That's about 14% per year.
There are a lot of smart people who have been in the Vanguard S @ P 500 Index Fund for an even longer than ten year period.
Recently there were many smarter people who sent a lot of money with some other fund who's name escapes at the moment. This fund overtook Vanguard as the largest fund in existence. I think that will only be a temporary state of affairs. When the smart people see their statements, they might very well remove their $$ from fund X and go back to Vanguard and other things such as SPYders and other related funds.
I personally am now a member of the retired and do not have a ready source of income. What I did to satisfy my investing urge was to set up two accounts that are now in two different brokerage accounts. In account #1 I place enough funds to provide us with enough dividends and interest to let us have a pleasant retirement. In account #2 I placed my gambling $$. A chunk of it is in UOPIX. That chunk is down this year but is about where it was when I first started UOPIX in 1999. To be totally honest my funds invested with ProFunds are down 8.5% from when I started with them.
There are lots of scared people right now. I don't think they are scared because of President Bush. If that's what they are scared of they're as stupid about politics as they are about investing. There is nobody who knows what the President Elect will do in the next four years. In my opinion they're scared, whether they know it or not because they failed to diversify their investments.
The Dow Jones Industrial Average this year has fallen from 11357 to 10487 a decrease of roughly 7.5% This is not something to cause a panic! Most of the stocks in the Dow pay dividends which would have reduced the size of this decrease by about 1/3 or more. The panic exists only in the minds of people who are too heavily invested in the NASDAQ.
I'd like to give an example of PALM which yesterday lost over 30% of it's value. After the loss it's P/E is still over 300.Not too long ago people were clamoring to pay 50,60, even 100 for this stock. That is insanity, or to quote Mr. Greenspan "irrational exuberance".
Getting back to my two accounts; my income producing account looks just fine right now,as I am sure do many pension fund accounts. There are some professionals who do know what they are doing.
My gambling account doesn't look quite as good. I had to realize small loss the day before yesterday to eliminate a tax liability next year.
Diversification works. Diversification does not mean owning 10 or 20 tech stocks.
Bernie |
